Tariffs, FIIs, and the Dollar: Sandeep Tandon deciphers market moves

"We have seen a sharp 8% sort of correction in Nifty. Maybe once this correction get over in a day or two, India has potential to recover further from the current levels in the month of April itself," says Sandeep Tandon, CIO, Quant Mutual Fund.

You have been bullish and you have been right. Now that the event risk is behind us, do you think Indian markets, which bottomed out at the end of March will continue to gain more steam? Just analyse the news for us before we get into specifics.
Sandeep Tandon: So, prima facie, when we look at news on an absolute basis, it looks negative. But as a student of theory of relativity, I will always say, look at the relative.

India has emerged as a better sweet spot relative to China, relative to Vietnam or Bangladesh, where we face competition from the export front or any other country.

On the relative basis, we are in a better shape. Dollar index has corrected. So, again, emerging market theme can come back. The way we took a conscious call in the beginning of March, the trading bottom is around the corner, I still maintain.
We have seen a sharp 8% sort of correction in Nifty. Maybe once this correction get over in a day or two, India has potential to recover further from the current levels in the month of April itself.

So, we have to keep in mind we are living in a volatile world and we have to optimise any short-term opportunity which comes whenever market is like extremely oversold or extremely overboard.
So, all those inflection points we have to capture. And again, we have been talking about negative for about US market, right from January we said the worry is not India, worry is now US market where extraordinary competency was there and we talked about 15% to 20% correction can happen in the US, particularly on the Nasdaq side.

I still maintain that stand that US market has still not bottomed out and particularly Nasdaq has not bottomed out. So, anything related to technology basket or which is sentiment linked with the US market should be overweight.

So, now the tricky part is that tariffs are bad news for US. US inflation will go higher. If US slows down, it will affect rest of the world. So, today we may say that, okay, tariffs do not impact India, they impact China more but the reality is that if the biggest economy in the world slows down, that sooner than later will impact global growth, which in turn will impact Indian earnings.

Sandeep Tandon: So, I completely agree, that is one of the reasons we said that first half will be challenging of 2025 and second half will be better.
See, the way I look at is that now everybody believes that this water step they are taking is obviously against the interests of the US itself, the inflation can come back, which is a larger thesis also for us.

But what we have to understand is that the way Trump has played this game, it is a well-calculated game. He has created so much noise, he likes to shake a lot of people and then he will come on the table to negotiate.
So, like whether you are talking about India settling by September or so. So, this one tariff is announced, then country-specific negotiation will start and with this announcement there will be acceleration in terms of talks process. So, I expect sector-specific tariffs will also come into play.
And this is the peak of the tariff which we are seeing for India or maybe for the rest of the world. Going forward, it has only potential to come down, that is the way I read Trump. He is a smart negotiator. So, first he has disturbed everybody.
Maybe short term it can create disturbance in the market. But if I look at the market from a second-half perspective, it can come back and stock-specific opportunity, let us say India-specific, let us focus on India for the time being, it is India-centric opportunity which we talked about larger infra theme, hospitals, or hotels, or even talk about the PSU basket.
The India-specific thing, pharma has been our top sector pick for a while now. These are the opportunities which I like to capitalise rather than getting too much worried about the global demand which obviously has its impact, but there is opportunity also.
So, I will play the opportunity game rather than getting too much bogged down on the global environment.

Something that you track very closely. You think the trick is going to be in the dollar index, the way that is going to move in the months following now, that is going to dictate perhaps which way the global money is going to turn?
Sandeep Tandon: So, answer is yes and no both. But if I have to talk about from a very longer-term perspective, let us say talk about three years, five years perspective, then trajectory for dollar index is clearly down. Dollar index either has already peaked out or has potential to peak out in 2025 itself.
But if I have to look at from a very near-term perspective, despite that DXY has corrected yesterday, I still believe DXY and global yields we have to watch very closely.
It has potential to spike from the current level because when nobody expects that and that is the time reversal happens. So, I am not being getting very complacent about DXY, but yes, I agree the largest structure is slightly weak which is a good thing for emerging markets.
See, what we have to look at till the month of January, the extraordinary money flow was going to the US market. If I look at analyse the cross-border data, then definitely it is a very large cross-border flow was there in the US market, now that has reversed and India will be beneficiary of that reversal process, provided even our currency which is also partially appreciated, so emerging market as a basket will do better.
Look at Europe has done better than the US. So, we do not have to look at in isolation in the market. We have to look at the relative opportunities.
So, European market looks better. Even I am not that negative on China, maybe today it has corrected, but the entire emerging market it is a beneficiary.
If I have a patient investor for let us say six-eight months’ perspective, I am not talking about very far away, if I have to do a six-eight months’ perspective also, India is a buying opportunity from the current levels.

I will take the clock back and say that in the month of March, the following factors were at play. Dollar was strengthening. It has weakened. FIIs were selling. They have stopped selling. Earnings, economy was slowing down, contraction for India has stopped and tariff concerns were occupying centre stage, which has been addressed. So, can I say that all the headwinds in the market have now become tailwinds and it is time to now turn reasonably bullish for the rest of the year and market trajectory is not going to be lower, it is going to be higher?
Sandeep Tandon: If you want to look at this way, answer is yes. We can say with good amount of confidence that we have seen selling absorption on the FII side. This was the biggest negative news which people were anticipating. Finally, that 2nd April date is also over. This is also behind. Now this is the worst-case scenario, the tariff has been announced.
The only thing is that for India or any other country, negotiation will start, so that mandivali will start in true sense and now going forward if you ask me, it has potential and it can come down the rate, this is the peak rate we have seen.
However, you might see some sector specific rates which has still not come out in the public forum, let us say pharma is one aspect or semiconductor or some of the other spaces or aluminium, copper, there might be a sector specific thing and with the minimum expectation of 10%, but now that will all depend on the country to country how and India has already taken the lead, so it is a good step, a right step,
I will say. So, maybe by September where a lot of people are expecting that it should settle down. I am even optimistic that even it will settle down much earlier than the September. So, maybe worst is behind us. I will not use the word aggressive buyer, but I will be buyer in these names.

So, while nothing really changes in one's core portfolio and I completely get it that it is not timing the market, but time in the market, which has always been beneficiary in the long run. But for more tactical investors, what should their approach be? Because you have had a very steep fall on the Nifty alone, almost about 14% to 15% from the top and we have recovered halfway as well. There is a lot of sectoral churn at play and now there is this new googly of how tariffs are going to play out. Yes, there are some sectors like pharma, which have been eluded. But as a tactical investor, what should one be doing right now? Looking at this event, now that it is behind us, you know how bad it could get, you know the ceiling, should I be doubling up on my SIPs?
Sandeep Tandon: So, this business is all about risk and I always say assessing the risk you have to be ahead of the curve. Like, we were very cautious from last year itself and finally peaked out in January, something, it is like everybody is waiting for more clarity to emerge.
Let this event play out, let me see. If everybody waits for more clarity, then you will not get the opportunity. In any crisis, the opportunity is the best and that is the way I said in the beginning of March also. So, from a behavioural perspective, people have given up completely. Like India was buy on dips, that became sell on rise.
And if you really analyse the entire position also, there was a classic capitulative move happening in multiple stocks and sectors. So, the way I will read it, I will take this opportunity or this crisis as a buying opportunity or maybe switching opportunity.
Some of the stocks which have not performed or you think they are more vulnerable, particularly which are more global linked stocks, then I will be very cautious on some of these names. In fact, metals could be one area where a lot of compliancy is getting built, now metals has done well.
But if global demand goes for a toss or this uncertainty gets built from a trade war perspective, then there is an issue out there, so is the case with IT also.
One more important aspect we have to understand, how do China will react. If you look at currency, it has depreciated 7.3 as of today or 7.31. What is very important, if China take a very hard stand on US and really start the tariff war, then the risk of Chinese stock getting dumped in Asia and Europe will be on higher side, so that is one area where we will watch very carefully. Instead of looking at the US now, I will be looking at the perceived risk coming from China, both in terms of policy announcement as well as the action what they will take.
So, China is something which we have to watch more from how they will count and how they will relate to this development, so that is going to be very important.

Where does the entire matrix for small and midcap stocks they fit in now? They were bloated, they have corrected. What is happening there? And first, what is happening there in terms of a theme and then B) if you could also tell us that with specific small and midcap schemes of Quant, have you got inflows or outflows now?
Sandeep Tandon: So, I have been saying for a while that we are constructive on large and mega large and along with that we said smallcaps looks better than the mid because midcap has its own challenge which is only 150 stock basket and that was a space which was grossly expensive.
If you look at 40, 50 to 200 multiples those stocks were quoting, all the HNI, family office, FIIs, local guys, retail, everybody participate in that basket. So that basket is more vulnerable where the comfort factor is large, mega large, and the smallcap.
In fact, even the smallcap looks far better than the midcap. We have increased our exposure to the smallcap. As far as flow is concerned, we have not seen any major outflow, rather we have seen inflow in the smallcap basket, but the intensity of inflow what we have seen in the past that has come off significantly, but inflow are still positive for a smallcap as of now.

What should the sectoral bias right now and for the next six months going to be? Pharma obviously is seeming like the obvious trade and IT a complete avoid. Other than that, if I am looking at sectoral churn in my portfolio, what should my bias be and what should my avoids be, both near term as well as for the next six months to one year?
Sandeep Tandon: A lot of people have dumped PSU and they are again become untouchable for most of the money managers, I think that is an area of opportunity. We have increased our exposure by 6% to 8% in the last two months or so in the PSU basket, so that is another opportunity which is coming. Then, I like hospitality, both hotels and the hospital stocks in general. Hospitality as a space looks good to me.
Then, if I have to look at, then I will be very selective buying opportunities there
But anything which is extraordinarily hyped in the last two-three years where we have seen some of these names were trading absurd multiple, they are most admired territory stocks, those are clearly avoidable in the current context because there is a mindset is there, oh, these are the best performer now.
They have corrected 30-40%, let me look for a buying opportunity, I think that will be the biggest trap where we have to look at the under-ownership, the erstwhile admired territory stocks are now trading in the neglected zone, so those are the names which I would like to optimise.
These are predominantly largecap names, good management companies, fairly liquid names and liquidity is very important in the current context.
When I say in the risk off environment, safety is the first priority, liquidity is second, and the returns are the third. So, liquidity is also very important and every aspect, any decision we take, we do look at the liquidity. For us in this market, the impact cost will play a very important role in filtering the stocks.

So, what is in the price right now? From an earning standpoint, are markets factoring in a 10% to 12% earnings? Are markets factoring in a 12% to 15% earnings? How much of the earning upside or revival is in the price?
Sandeep Tandon: So, to be very candid with you, as you understand, we do not get into this forward looking earnings thing because these are all our assumption based and anything which is assumption based, you get up into a situation where you have positive or negative surprises.
But the only thing from our behaviour perspective or from the perception analytics perspective, we can say market will be at least one or two quarters ahead in terms of reversing of the earnings cycle.
So, if you believe that worse is behind, I will not use the word sector also, certain stocks have already bottomed out from an earnings perspective, let us say in March quarter and some more names will bottomed out by July.
So, if somebody has to believe these cycles have bottomed out, then I should be a buyer in some of these names. So, a stock specific call one can take on an individual basis.
But I will say that earnings cycles for few names have already bottomed out and many names it should bottom by July quarter or so.
So, one should look for a buying opportunity in these names rather than getting too much hyper and paranoid about the global situation. When it was required last year, then people were very complacent, everybody was aggressive buyer and now prices are broken so a lot of people chase prices and since as a house we look at more on the inflection points rather than momentum and our inflection point data is already endorsing that there is upside. There is a probability of you making more money by going long rather than by exiting the market.