Bull market enters a difficult phase; how should you position your portfolio?

Quant Mutual Fund

Equity markets have been witnessing a relentless upmove for the past 18 months and many of you might be wondering if we are in a bubble zone. While every investor aspires to invest in a potential multibagger stock or the best performing mutual fund scheme, only a few smart ones manage to do so.

Irrespective of the market trend, smart investors neither throw caution to the wind nor do they get butterflies in their stomach. How do they manage this? We caught up with Sandeep Tandon, Director and CEO, Quant Mutual Fund recently to find out the answer.

When we spoke to him in June this year, when the Sensex was at 52,000. Such levels from the March 2020 lows looked like madness then. So where do we stand today as the Sensex has crossed the mega milestone of 60,000?

Here’s our interpretation of our conversation with Sandeep Tandon

Has madness turned into an enigma?

As the name suggests, Quant Mutual Fund believes in quantifying all factors that move the market. The fund house gives equal weightage to three factors—valuations, liquidity and market sentiment—to gauge the attractiveness of markets/sectors/stocks.

Markets beyond economy

As far as the global markets are concerned, sentiment indicators are hovering at the upper end of the spectrum. The global growth perception appears to be near its peak. Markets rarely peak at this level of conviction.

Liquidity has already topped in February 2021 and between February 2021 and now, it has been drifting downwards. Despite this, it was strong enough to take the markets to new highs but one has to distinguish between smart money and dumb money, going forward.

Perception analytics suggests that growth stocks are possibly at the cusp of peaking-out but no indicator hints at such euphoria in value stocks. In other words, the phase of high liquidity chasing high growth multiples could be a thing of the past.

As far as Indian markets are concerned, the situation is slightly different. Here, liquidity is still going up and risk appetites are rising as well. This market behaviour resulted in the recent outperformance of Indian markets. There is no market euphoria in India as of now. That said, if anything goes wrong in the world markets, Indian markets may follow.

Is a bubble building in technology stocks?

Perhaps not yet! But the valuation multiples suggest that we might be very close to the peak. And historically, it’s been observed that whenever valuations peak out, outperformance stops. Thus, euphoric rallies witnessed in the technology space could also be a thing of the past.

Loss of the US markets is a gain for emerging markets

Complacency in the US markets is at a multi-year high and so is the risk appetite. US-focused funds are proliferating of late. This is a sign of complacency. US-centric funds are easy to sell—thanks to a decade-long bull market in US equities.

Besides complacency, high inflation is going to be a worry for the developed markets until 2027-28.

Inflation in the US may not be transient in nature as perceived by US policymakers. In fact, the US might see its highest ever inflation in this decade. The US Dollar Index is still trending downwards.  In fact, the US Dollar might lose its reserve currency status in the next 2-3 decades going by the ever-changing macroeconomic conditions.

As money shifts from high risk assets to low risk assets, even 10%-15% diversion of liquidity from developed markets to emerging markets may result a huge outperformance of the latter.

Is the bull market coming to a halt in India?

In India, we are still in a bull market but the easiest phase is perhaps already behind us. Now the markets are entering a difficult and rather a tricky phase of the bull-run. The future movements are likely to remain choppy and returns may not be linear. Investors will have to tone down their expectations to more realistic levels. The markets are unlikely to repeat their performance of the last 12-18 months.

What strategy should investors adopt?

Contrary to the belief of conventional investors, the buy-and-hold strategy is unlikely work in the today’s dynamic market environment. Generating better-risk-adjusted returns is impossible without following a nimble approach and efficient money management.

Thus, we shouldn’t treat churning as a bad practice. When technology is expected to drive major decision-making in money management, investors must adapt quickly to the situation to be relevant under all market conditions—something that Quant endevours to achieve.

Which sectors/themes look attractive in India?

At present, India appears to be in a sweet spot given that it’s chalked out a huge infrastructure spending plan. Like elsewhere in the world, value as a theme is likely to work well in India, going forward. Old economy stocks—commodities, real estate, capex stories, certain pockets of banking, may do well.

In Summary

  • There’s no euphoria in the Indian markets as of now
  • We are in a bull market but this isn’t an easy phase. Markets are expected to be volatile
  • Money changes character. It shifts from high risk assets to low risk assets
  • By this logic, the US may not do well in future, emerging markets might
  • Buy and hold may not work
  • A dynamic style of management, which involves nimbleness and adaptability, might work in future

Quant – a fund house that walks the talk…

Quant Mutual Fund has come into the limelight in the past 1 year due to its astounding performance and unique style of asset management. The equity AUM (Assets Under Management) of Quant Mutual Fund has jumped to Rs 2,864 crore in August 2021 from just Rs 108 crore in August 2020.

This was our second interaction with Quant Mutual Fund in the past 4 months. According to our understanding of their philosophy, Quant Mutual Fund believes in being relevant under all market conditions. It is agnostic to all asset management philosophies and believes in following one that works best under a given market scenario.

The fund house has walked the talk so far.

It has demonstrated courage to buy out-of-favour stocks or take contrarian bets on sectors. Moreover, Quant Mutual Fund has also followed its conviction to avoid popular stocks and sectors before the market at large realized the tiring moves. And to say the least, its performance speaks for itself.

You may also like to read: Making sense of market madness

 

Disclaimer: The blog is for information purposes only and it’s purely based on the interpretation of our conversation with Sandeep. Anything mentioned herein should neither be construed as financial/investment advice nor should it form part of any view/recommendation(s) given by Ventura. Under no circumstances the contents of this blog should be treated as Ventura Securities’ market view. The only purpose of this coverage is to create awareness amongst investors and help them take well-informed decisions.

Please consult your financial advisor before taking any decision pertaining to your finances. Investing in mutual funds is subject to market risks, please read the scheme information documents carefully before investing.

The blog is for information purposes only. Asset allocation is an extremely important decision. We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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