Sandeep Tandon, CIO, Quant Mutual Fund, says Donald Trump employs a chaotic management style, targeting India to indirectly influence Russia, a strategy India has navigated skillfully. Tandon suggests an India-centric portfolio, excluding pharma and expresses concern about the US market’s vulnerability. A sharp correction is anticipated in the US, potentially altering Trump’s narrative.
Trump is definitely making our lives exciting. What about the equity markets because they, much unlike what one would have thought, are showing a great amount of resilience. Today though, could there be a knee-jerk reaction?
Sandeep Tandon: Frankly speaking, it has already been priced in. Nearly for a month when this uncertainty was getting built, we were talking initially about how India will be the first to sign the deal and that will be a roadmap for other countries also, but that did not happen. The market has already been slightly nervous about it and up to a large extent, it is factored in. If you recollect two days back, he has already made an announcement talking about 25% and raising it to 100%. Anything above 25% is above the competitive rate.
For example, Bangladesh has 20% tax and we are 25% in textiles, so obviously the 5% gap is pretty large. Our business is anyway unviable at 25% also on a relative basis and whether 25% becomes 50% or 50% becomes 100%, it does not make any difference because the unviability is already there. The way I look at this thing, in every crisis, India has evolved. If you really look at it in the last one-and-a-half or nearly two decades, in every crisis, India has moved to the next level and I respect Indian entrepreneurs.
If you recollect our journey from 1991, how India has come back after every crisis, this is an important lesson for us also not to be dependent on one country or one way of doing things. So, it is great news from a longer-term perspective. Indian entrepreneurs will recover and the way the government is handling it, instead of focusing only on the US-related thing, they are working very closely on the bilateral talks whether we have seen this is happening in UK, with the Europe, it is going to happen with the Middle East, and that is a way going forward. I will look at it as a slightly constructive thing, every jolt will make you stronger from a longer-term perspective. There may be a small setback here and there, but since this is an entrepreneur driven economy, we will come back.
I was just looking at the figures, the exports to the US and the imports from the US and the proof is in the numbers because the impact to GDP is going to be only about 2% to 3%. Having said that, do you sense that there could be some multiplier effect in the longer run ?
Sandeep Tandon: If you look at it, last year it was 2.2% and given what is happening, it can even come down below 2% also. So, it does not have any meaningful impact and then you have to dissect what is up to there for the pharma and the exempted sector. 
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So, the exempted sector also contributes significant numbers. After excluding the exempted sector, the numbers are not meaningful at all. Again, you have to keep in mind these are all great posturing, that is the way I will look at it as a behaviour analyst. A posturing game is going on. Every company in the US has already done stocking up to a large extent. If you really look at the last quarter’s numbers of some of the companies, it is really good. The same trend continues there also. So, I do not think at least for quarter or quarter-and-a-half, there is enough inventory in the US and this is a posturing game. By the end of August or the end of September, we are going to work it out. See, a lot of people read Trump in a very different manner. People criticise him but that is his style of doing things. He is a businessman. I always say he is not going to be a deal breaker. He is a deal maker. But he will do it on his terms and his way of doing things. He will create noise around him, pressurize you and that is his way of functioning. Donald Trump goes for management by chaos. He creates chaos around you and then asks you to settle down. The day before yesterday’s press conference was largely dedicated to India. Of late, he is not able to settle scores with China. He is not able to do much with Russia. So, he is indirectly pressurizing India to manage Russia, and that is the way I read it. It is a great posturing game and so far India has played it very well. We should not give up so easily because ultimately, we are looking for a multipolar world and in a multipolar world, bilateral treaties are more effective, which are cleared by the respective parliament or their cabinets and which cannot be changed at the whims and fancy of one individual. So, from a longer-term perspective, I am not at all worried and even am very optimistic something will work out. This is a great posturing. Both sides have been posturing. It is more of a posturing style rather than reading too much into it.But what is in it for investors amid all this posturing and all the noise and the news flow? What should Indian investors be doing because we have already had a rough patch of July. I was just looking at the short buildup, and that is pretty much at high levels right now. A lot of damage is already baked into the stock prices. But the question is what is the positive trigger? What could take markets up from here?
Sandeep Tandon: First of all, let us be clear that India is a buy on dip. Let us understand the larger thesis. Once your larger picture is clear, then we will address the near-term and medium-term challenges also. Obviously the larger picture is that clearly India is a buy on dip and hence somebody says I will sell now and try to rebuild my position again when it looks slightly clear, that market will not give you any opportunity.
If you recollect, a few months back, we were very vocal that the smallcaps will bounce back quickly, midcaps will come back when the whole narrative was getting built around midcaps and smallcaps and that they have made a long-term top. So, we have to look at how ultimately this is a numbers driven economy, if we are doing very well, on an absolute basis, the economy is doing well. On a relative basis, we are doing extraordinary.
There will be some patches here and there because I always say no moves are going to be linear. In a decisive bull run or difficult phase of bull run also, you will see these bounces of volatility which we are facing right now. The way I look at it in terms of behaviour, people are very cautious, participation level is on the lower side. Worry is that FIIs are continuously selling and that also sometimes I see as a part of a diplomatic strategy.
If you recollect a few years back also, we have seen when noise related to China happened and China was largely boycotted by FIIs, they dumped it and ultimately they bought it at 30-40% higher. A similar stand is also getting built here. If you sit down and analyse this data, a large amount of selling is coming from the US entering long accounts and that is the way I will also try to read. This messaging is telling us that even FIIs can be bigger sellers and that could be another pressure technique.
The way I look at it is that one has to play this game with more maturity. Go for a largely domestic-centric portfolio except pharma. Pharma is the exempted sector and it is a no-brainer trade right now. He has exempted it globally and he does not have choices. Because if India shut pharma for one quarter, there will be a bigger crisis in the US. So, I do not think and so far India has behaved very maturely.
They have not reacted to the narratives or the noise which he is creating in the media on a regular basis. We have to deal with it in a mature manner and our government has handled it quite well. So, the advice will be to remain invested. Any sharp opportunity or fall comes with a gap down happening, that should be a buying opportunity. I do not see we have any issues in the short-term and medium-term for India also because crude has also corrected. Commodity prices are very much in control. Inflation is falling. RBI is taking the right step in terms of creating liquidity.
SEBI is also taking all the steps to ensure confidence in the capital market. The government is doing a great job. It is the maturity of the investors and we should also support a country in this crisis rather than getting capitulated at the bottom of the cycle. In fact, if you ask me, my worry is not India, my worry is the US market. This is what I said in January and we talked about 15-20% correction happening by March which played out well. We are getting similar signs of vulnerability. The complacency is extraordinary in the US and it is a question of time. The US market will correct sharply.
So, all the noise and narrative which Trump is making right now is linked with the market which has moved up. He started making noise in January, February and the market corrected sharply. He immediately changed his stand, particularly on the treasury front. Now, if the market corrects sharply again, which I am expecting particularly for the US market, his narrative will again change. It is a very capital-minded country and he himself is a businessman; he understands these things very well.
So, the way I look at, this is a great opportunity to invest in India-centric mutual funds, India- centric portfolios rather than looking out for overseas opportunities or overseas-centric schemes. If I have to look at risk-reward, India is in a very comfortable situation. I am not talking about the next two or three months’ perspective. But if I look at the next three years’ perspective, it is an opportunity. I am saying the US is more vulnerable than India. So, net-net, we should be maintaining our calm and just remain invested and remain convinced about our own companies, our own entrepreneurs and our own government which is taking the right steps.