Valuations alone do not provide all answers: Sandeep Tandon explains his churn strategy

To pick the sectors to look at, Quant Mutual Fund analyses money flow analytics and business cycle analysis.

Traditional wisdom suggests investors hold their equities with a long-term perspective to cherry-pick stocks that will give them returns through various market cycles and remain steadfast in their holdings.

However, in defiance of traditional investing norms, Sandeep Tandon, CEO of Quant Mutual Fund believes in the power of a steady portfolio churn through the ever-evolving market dynamics.

Positive aspect of a high portfolio churn

In an interview with CNBC-TV18, Tandon said, “It is a common misconception that buying stocks should always be approached from a long-term perspective.” While this approach might have yielded fruit during the early stages of the market, it doesn’t hold the same weight as industry dynamics have seen a change.

Since Tandon-led Quant Mutual Fund "adapts to changing data points globally", he is extremely positive about the high portfolio churn as a result of his "dynamic approach to money management." In this context, churn means a rebalancing of the portfolio.

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To Tandon, churn is a positive tool that considers risk. During a risk-on period, the portfolio construction is primed towards creating alpha. However, during a risk-off period, it allows him to protect investors' capital. "This approach helps us to not only generate additional returns during favourable market conditions but also safeguard our investments during more challenging times," said Tandon.

How Tandon looks at valuations

To select the stocks in his portfolio, instead of overly relying on valuations, Sandeep Tandon believes that dependence or heavy reliance on valuations can lead to missed opportunities, "as many astute investors have experienced during this recent rally".

Instead, equities should be approached from a multi-dimensional perspective, by looking at valuations in tandem with risk appetite and liquidity, which offers for a more accurate assessment.

“This is why we base our investment thesis on money flow analytics. We closely analyze how risk appetite and liquidity are shifting within sectors. If we observe significant changes, we make informed decisions based on these factors,” said Tandon to CNBC-TV18.

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To pick the sectors to look at, Quant Mutual Fund analyses money flow analytics and business cycle analysis. Once a sector has been identified, the MF moves to picking stocks within that segment. Quant applies a framework called VLRT or Valuation, Liquidity, Risk Appetite and Perception Analytics.

Perception analytics looks at historical data to assess factors such as PE multiples, said Tandon, adding, “Each data point contributes to a more comprehensive understanding of the investment landscape. By solely focusing on valuation, we may miss out on valuable insights and other factors that can affect investment outcomes.”

How should investors pick their stocks?

Since Quant Mutual Fund conducts extensive analytics, Tandon said they have an advantage in terms of understanding liquidity and risk appetite, which helps them select the right entry or exit point. “While some investors may be adept at identifying trends and opportunities for entry, many struggle when it comes to making timely exits,” he said.

Some of Quant's large-cap holdings include Sun Pharma, Adani Power, Ambuja Cements, GCPL and LIC.

However, despite the lack of access to sophisticated analytical tools, retail investors can look at the market chatter regarding certain counters. If there is excessive hype, greed, or positive narratives, he advised that investors exercise caution. Market sentiments are heavily influenced by the narrative, while reality might differ.

“When you observe an excessive build-up of hype and extraordinary news flow, it can be an indication to reduce exposure,” Tandon said.

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