“Even if the US 10-year bond yields go up to 1.8% or 2%, it will not have a meanigul impact. We believe the US 10-year bond yield constructive in the mid to long term perspective,” says Sandeep Tandon, CIO, Quant MF.The last 10-15 days have been full of chop and churn in the market. Are we in for some dull days of trade?We have been saying that the global volatility for most of the asset classes will remain elevated and the data points keep on changing. So, whether you talk about a dollar index or bond yield or sometime VIX related data points, a very interesting thing is a lot of things are changing but global risk appetite which started correcting from the mid February onwards, has reversed again. So global risk appetite is rising and that is reflected in the Bitcoin price movement. That is very supportive for the global equity or global risk assets from the near term perspective. Another important data point is global liquidity. It has started drifting down from January onwards, particularly on the momentum side, is again inching up. So, from a very near term perspective, risk appetite is rising and liquidity is also rising, all which is supportive for global equities. Yet another important aspect is the vulnerability factor. The complacency is also very high and it has now shifted from growth to value. But overall, complacency in the developed equity market, particularly in the US market, is on the higher side and that is a cause for some discomfort. I have been talking about this for the last two months. A sharp correction has already happened in the Nasdaq. Maybe because of whatever changes happened in the very near term, whether it is bond yield or dollar index, some amount of shorts got initiated from the global equity perspective. In the next few trading sessions, we will expect to see one leg down significantly after this short covering and then again you can April onwards, a sharp move is possible because I do not think any move going to be very linear. Suddenly the perception about bond yields changed and suddenly we are seeing small reactions from a very near-term perspective. These bond yields are very constructive from a longer term perspective and constructive for value stocks. Even if it goes up to 1.8% even 2%, I don’t think there will be a meaningful impact. It is more of a psychological impact from the near-term perspective. Even from the medium-term perspective, it is constructive for global equities. The portfolios which you manage and the smallcap index have given extraordinary returns of more than about 200% in the last one year. It is a combination of IT and pharma at a time when markets are talking about cyclicals and domestic stories to play on the revival mode. Why are you still sitting in IT and pharma?First of all, we always manage our money in a very dynamic style. We do not believe in the buy-and-hold strategy. Obviously while managing a portfolio, we like to keep some core holdings. We keep on identifying good defensive stocks. We believe stocks like Fortis, Neuland could be a defensive name in our portfolio. In fact, they have rewarded us quite well but it is not that our portfolios are skewed towards IT and pharma in the midcap space. Yes, IT is on the higher side, but pharma has come off significantly. The moment you add healthcare, they look slightly skewed because we have a couple of stocks related to healthcare space rather than the pharmaceutical stocks. We are not bearish on pharma from a medium or long-term perspective, rather we are very constructive. From a very near term or medium term perspective, we have increased our overweight status towards cyclicals in a big way but they are not part of the top five-six holdings. But if you look at the larger portfolio, we have significantly higher weightage towards the recovery stocks or the value stocks. Where is the headroom left in IT and for that matter in pharma now?We try to optimise the near-term potential. As we are entering the next quarterly earnings season, the expectation is that the Q4 will be a bumper quarter for IT. That’s why we positioned our portfolios towards the end of the third quarter or the beginning of the fourth quarter towards IT names and we tend to make profit at a higher level. We believe the numbers will be very good there isn’t going to be any surprise element. But when the results come out, markets tend to react. We have positioned our portfolio from a very near term perspective, by which I mean it could be a month’s perspective from these levels. If we see any euphoric sign in these stocks, then the IT exposure may be pruned April or May onwards. As far as pharma is concerned, we have already pruned it down. It used to be 30% our portfolio by August-September. In the last four or five months, the pharma exposure has been curtailed significantly. I still remain very constructive from a near term but not from a very near term perspective. From both the mid and longer term perspective, we like to own pharma names because we have been talking about that from 2020 onwards. If I believe that the next three-four years will be very good for India, then this is the time to venture into neglected territories, the time for beaten down stocks. Pharma also qualifies. The pharma index peaked out in the first quarter of 2015 and it was in the most admired category at that stage. By September 2019, pharma stocks were the most neglected territory. We have been aggressively buying pharma stocks from September 2019 till March 2020. Now we have pruned the exposure. We have seen one sharp leg-up right now. These stocks are in a corrective and consolidation phase. That does not mean the sector has peaked out. It will be a big missed opportunity if the market starts believing that the story for pharma is over. We remain very constructive in this space from the next three to four years’ perspective. Talking about the beaten down space, which pockets would you be looking at in particular?From the near-term perspective, post Budget, the outlook for infrastructure has improved significantly. We are building exposure towards select PSU names and particularly the PSU names which are part of the infrastructure. Instead of banking, we prefer infrastructure PSUs. We like to add stocks which are more linked with the capex cycles and some of these names have been out of flavour for the last many years. We already have some of these names in our portfolio and would gradually like to add more of these names in our portfolio. What about consumption? Is this the time to cool off when it comes to consumption or would that remain a steady part of the basket?Select stocks in consumption are in good shape and they will deliver phenomenal returns. But we have to clearly differentiate some of the most admired stocks. I have been very vocal about that in 2020. Any stock or some of the sectors which are part of this category have been very expensive. I am not debating about their growth aspect but ultimately money is limited. So, if you start looking at the money flow analysis, it clearly indicates that all the stocks which are part of the consumption basket and are in the most admired category, will underperform. But there are many consumption names in our portfolio and the market which are not in the most admired category. One can look for opportunity in these stocks. Why do you have an aversion to banks? Don’t you believe that this is where value is?We believe that the real economy is going to do well. Obviously banks as part of the leverage economy should be a natural beneficiary of that. The only challenge which we see in the banking space is that it is a grossly overowned category. Whether you talk from the FIIs’ perspective or the domestic mutual funds or the family office or even ultra HNIs — banks are grossly over owned. They are up to 40% of the Nifty also and that is where my discomfort comes from. Going forward, the thesis is all about under ownership. You have to identify stocks or sectors which are under owned and banks in particular are grossly overowned. Whenever we see the market correcting, the first correction comes in the banking space and that is not a sign of leadership. So we are not very optimistic from the over ownership perspective, but from a longer term perspective, we remain constructive on this space.