Market Insights: Opportunistic Investing and Companies Poised for Expansion

We are pure opportunists; don't love or hate any stock or sector: Sandeep Tandon

It is not only about India, India is like we have seen extraordinary valuation for this thing, it was grossly over-owned. So, we have been cautious. But that does not mean that if any stock hit any inflection point, extreme hated zone or neglected zone for a while for whatever reasons, we will capture those movement and we have captured very recently a very large movement in one of these stocks also."We believe the leverage economy as a concept is declining and hence banks are byproduct of that thesis and that it is a derating process which is happening globally," says Sandeep Tandon, Quant Mutual Fund. Let us get in your take then as to how you read into the entire financial sector. For the longest time, we had seen that some of the large cap private banking names were perhaps stagnant, if you will and then we saw the momentum creeping in, of course, now the sector change has taken place. But let us talk about public and private banks. What is the stance? Sandeep Tandon: See, you have seen our portfolio that we have been quite cautious on the private sector bank not only for last few months, it has been for last many quarters. We believe the leverage economy as a concept is declining and hence banks are byproduct of that thesis and that it is a derating process which is happening globally. It is not only about India, India is like we have seen extraordinary valuation for this thing, it was grossly over-owned. So, we have been cautious. But that does not mean that if any stock hit any inflection point, extreme hated zone or neglected zone for a while for whatever reasons, we will capture those movement and we have captured very recently a very large movement in one of these stocks also. So, I think that is a part of our exercise. But if you really ask me, from let us say longer-term perspective, if you ask me next few decades whether banks as a sector which is 40% of the index today and if banks exist in this form whether the weightage will remain, the answer is big no. Yes, I also believe that banks will also change accordingly, because the way we are looking at the digital currency sort of thing or central bank digital currency thing and some of the changes which is happening globally, we believe bank will not exist in this form and hence the derating process and I also believe the weightage which you have seen will not be there in next 30 years or 20 years. From that perspective, we have been extremely cautious, I am not saying I am being negative on the banking as a space, you cannot be negative because given the economy interest which is there and valuations have corrected again is a relative word, it has corrected a lot. But again, it is a very theoretical exercise whether these valuations are expensive or not, as compared to globally they are still very expensive, still over ownership is there. We remain very cautious on this space and appropriate moments we will capture it. But if you really look at in our overall portfolio, I think banks will be less than overall, maybe less than the 10% of our portfolio as of today. You bought a lot of PSUs and especially railways. Do you think there is still value left in some of these PSU stocks, railway, defence? Sandeep Tandon: So, we were very early in spotting this trend, right from September 2021 we spotted value as a thesis and we always talked about the PSU within the value thesis, the PSU is the best place because it is very important to understand even when the SEBI circular came talked about in month of February and particularly how the mid and smallcap concern came and that is the time on one of the channel I talked about, I said that ultimately when you have to showcase your report card, your liquidity data, your valuation data on monthly basis, then how as a money manager you will not like to see your report card getting deteriorated month on month basis because we were expecting the volumes will shrink, the impact cost was rising, which did play out quite well. And with that background, how to play this thing. So, obviously, PSUs were relatively cheap. They are fairly liquid. If I want to exit or build a position in any of the PSU, the liquidity is extraordinary, so which was not the case few years back. So, I will like to play this thesis and that is the reason we went overboard and build a large exposure or maintain our large exposure toward this space because they are fairly liquid, fairly attractive in terms of valuation point of view, impact cost was on lower side, and they were trading in the neglected territory. Today also many of the PSU people do not like, it is like untouchable sector sort of thing, though retail participation is like but most of the best of the money managers not only in India, globally do not like to touch the PSUs, in general that is a thesis which they have for various reasons. But I think I have been very vocal in last few years, particularly last two-three years we are talking about that something has changed in PSU. But again, from our perspective, we also not married with any sector or stock, based on the opportunity we book profit and based on the opportunity we rebuild our exposure or even add new names. So, we are pure opportunists. Wherever we see superior risk adjusted opportunity, we will play that opportunity and we do not have any love and affair or any hatred sort of feeling for any sector or any stocks. Looking at your schemes from couple of years now and if one really looks at the schemes while they have grown big. Some would say that there is a big churn in some of the way you manage money. Couple of quarters ago Adani was the top holding, now Reliance is the top holding. Why is that, unlike a lot of other mutual funds where there is buy right, sit tight, buy and hold, there are a lot of churn in your top four-five holdings. Sandeep Tandon: So, let me explain to you, this is the biggest myth which we have grown in India. We have been taught a word churn, which is generally considered as a negative connotation, high churn means no clarity of thoughts. High churn means no visibility in terms of whatever you are doing and you are confused, that is the way a lot of people look at this data. If you even read the global textbooks, it is all about concept of rebalancing. So, your private equity can rebalance a portfolio and let us say in five years or ten years and maybe long accounts rebalance their portfolio on a yearly basis, some hedge funds rebalance their portfolio on a quarterly basis or monthly basis and some of the traders rebalance portfolio on daily basis. So, one has to look at what is a need. Second most important is that since we live in dynamic world and I always talked about world is so dynamic, our money management style cannot be static and we were the first to introduce the concept of dynamic style of money management in India. And when you talk about churn, we link with the risk on, risk off environment. At Quant Mutual Fund we always quantify the risk on and risk off. I have seen most of the places it is actually a postmortem analysis, oh, that was a risk on period, oh that was the risk on period, oh risk off period just peaked out, because prices have corrected. But with the help of predictive analytics thesis which we have built and we have been talking about not only the risk on, risk off cycle, we also talk about the quantity or the quantum or the intensity of risk on and risk off. Let us say example, September 2023, we were very negative on from January onward because India risk appetite peaked out in January, since then we were cautious and we talked about by September 2023, India risk appetite should bottom out and it did bottom out in September, October. And since then, we were relatively more aggressive in terms of building high beta names in our portfolio and that thesis played out very well. It is all about risk on, risk off environment and if I am able to see or foresee a risk on, risk off cycles well, then if I am rebalancing my portfolio, reconstructing my portfolio, actually we are reducing the risk for the masses, for our retail investor, our investor in general, the risk profiling has been reduced, whether it leads to higher churn, so-called perceived worth churn, I think churn is good because it actually protects my downside. When you talk about in our VLRT framework, risk is the most important aspect. So, we very proudly say we are in the business of risk management, returns are byproducts. So, it is up to us how we manage risk and the challenge with the industry is that majority of the people or the masses chases the returns, not worrying about the risk. We talked about like how known risk is something is known to people, how unknown risk can be manageable. Very recently talked about how perceive risk works, so we have been working, we are releasing a note on the perceive risk also, how the perceive perception works. It is a very interesting way how you manage your risk, ultimately this is a business all about risk, so churn is a part of that exercise. I think as an investor, as a community, we should change, remove this thesis from our mind that churn is bad. We have to look from a risk management perspective, if environment is changing and risk profiling of the sector or the country or stock is changing and there is various forms of risk which you look at and if something is changing purely from a risk perspective and you have to reconstruct or rebalance or redesign your portfolio, I think it is a healthy strategy. It generates better, superior risk adjusted return. I think from a risk perspective, this is one thesis we strongly believe and it is more from a risk management thesis. So, like even our thesis about timing, a lot of people consider timing is bad, nobody can time the market, timing the market is good. Yes, I agree, timing the market is your experience, but timing is an analytical tool. Timing is not look at from a trading perspective. Timing is a pure analytical tool. When timing analytics is a function of liquidity analytics, it is a function of risk appetite, it is a function of valuation analytics. And when multiple data points are skewed in one direction, it leads to a better timing and hence better or the lower risk, so which leads to a better superior risk adjusted return. I think the whole thesis people have to change and this is one philosophy we go and educate hundreds of our distributors and our retail investors, if something has changed globally. Look at the US market, how beautifully it has changed. Today people start cribbing, oh, algos are running the show, AI coming, ML is taking over. Ultimately, we have to change with time, it is about analytics, it is not about whatever terminology you want to use it. It is all about analytics which is playing and I think everybody should invest and that is Quant as a house we call it, so we are analytical, our business is byproduct, what we do, this is a passion, and business is byproduct. So, once you start getting into that aspect, people will appreciate and this is something at least we are very happy to say that our masses, retail investor has really understood as compared to the family office or ultra-HNI, they have not understood our thesis that well the way retail investor has understood and we are able to generate alpha for them and better risk adjusted returns.

Top 5 companies poised for massive business expansion

The simple things are often overlooked, no matter the field. People tend to avoid simplicity, thinking it's boring and too common. But what if I told you that, when it comes to investing, the simplest approach often yields the best results? Today, we'll discuss one such simple yet effective approach to investing. You can track and understand many financial metrics, but in the end, it all comes down to how much of the company's revenue translates into profits. Investors can disregard all other aspects and filters except for this, because this is ultimately what they invest in. All other providers of capital to the company get their returns before the earnings are available for the shareholders. So, the most important metric for equity investors to track is the net earnings that the company generates. Now the question is, how can one predict or have an expectation of the earnings that the company could generate going forward? Analysts often build complex models to track various companies, but for individual investors, the simpler approach is to look for the guidance management offers for both revenue and net income for future periods. Let's look at some companies that have given strong growth guidance for the future. Pricol manufactures and sells instrument clusters and other allied automobile components to OEMs and replacement markets. The company was formed by amalgamating Pricol Ltd and Pricol Pune Ltd in FY17 due to huge losses in its acquired subsidiaries in Brazil. Its product portfolio includes driver information and connected vehicle actuation, control, and fluid management systems. The company produces sensors, connected vehicle solutions, battery management systems (BMS), instrument clusters, telematics, fuel pump modules, disc brakes, oil pumps, water pumps, wiping systems, cabin tilting systems, and fuel feed pumps. Pricol has nine manufacturing plants in India and international offices in 4 destinations. From 2020 to 2024, the company experienced significant growth. Sales increased at a 5-year compounded annual growth rate (CAGR) of 5%, and net profits rose by 23%. The return on equity (RoE) and return on capital employed (RoCE) averaged 8.9% and 13.8%, respectively. In FY24, revenue amounted to ₹22.1 billion, marking a 16% YoY increase from ₹19 billion in FY23. Net income reached ₹1.4 billion, up by 12.7% compared to ₹1.25 billion in the previous financial year. Currently, 8% of the revenue comes from the export market. Pricol has gained market share in the two/three-wheeler space and plans to improve further based on recent Letters of Intent received from Honda Scooters India. Capacity utilization for the year stood at 85%, and the company has planned capex of roughly ₹2-2.2 billion for organic facility upgrades in Pune and Coimbatore. The company's management aims to achieve ₹32 billion in organic sales by FY26, supplemented by approximately ₹4 billion from inorganic acquisitions, targeting an overall growth rate of 21% over the years. To reach this ambitious goal, Pricol has been expanding its product lines and acquiring new customers. Second on our list is C.E. Info Systems Ltd, popularly known as MapmyIndia. C.E. Info Systems is a data and technology products and platforms company offering proprietary digital maps as a service (MaaS), software as a service (SaaS), and platform as a service (PaaS). The company is India's leading provider of advanced digital maps, geospatial software, and location-based IoT technologies, accounting for 95% of the total market cap of the industry. MapmyIndia has been an early mover (started in 1995) in India's digital mapping and pioneered digital mapping in India. It serves B2B and B2B2C enterprise customers, holding a 95% market share of the in-dash navigation market for India and over 80% market share in automotive OEM navigation software. The company operates two main business verticals: map and data products, and platform and IoT products. MapmyIndia provides advanced maps representing the real world in 2D and 3D, updated continuously in near real-time for place updates, location-based events, safety alerts, changes in road conditions, live traffic, and weather. The company also builds and releases digital maps for countries outside India, such as Sri Lanka, Bangladesh, Nepal, Bhutan, Myanmar, UAE, and Egypt. From 2020 to 2024, sales increased at a compounded annual growth rate (CAGR) of 23%, and net profits rose by 46%. The RoE and RoCE averaged 20.8% and 19.4%, respectively. In FY24, the total revenue from operations grew by 35% YoY. Consumer tech & enterprise digital transformation revenue was up 49% YoY to ₹1.9 billion, and automotive & mobility tech revenue was up 23% to ₹1.8 billion. The map & data revenue rose by 23% to ₹1.4 billion, while platform & IoT revenue surged by 42% to ₹2.4 billion. Net income grew by 23% YoY, with cash & cash equivalents reaching ₹5.5 billion by FY24-end. The annual new order booking increased significantly, up 63% to ₹8.3 billion in FY24. With a focus on IoT-led business, the company aims to surpass ₹10 billion in revenue by FY28, a CAGR growth of 28%. PI Industries is a prominent manufacturer of insecticides, fungicides, herbicides, and specialty products widely used in agriculture. With five decades of experience in the agrochemical sector, it's a leading producer of generic molecules in India. PI operates in more than 30 countries worldwide and boasts an extensive distribution network comprising 10,000 active dealers/distributors and over 100,000 retailers nationwide. From 2020 to 2024, sales increased at a compounded annual growth rate (CAGR) of 22%, and net profits rose by 33%. The RoE and RoCE averaged 18.4% and 21.5%, respectively. This performance continued in 2024. Sales and net profits grew 18% and 37%, respectively. Despite delivering a strong performance, the stock price has been trading rangebound. PI Industries is targeting a 15% revenue growth for the year, with domestic business expected to recover soon based on IMD monsoon forecasts. Post-FY25, the company anticipates returning to 20% revenue growth as the industry cycle normalizes. Next is Rategain Travel Tech Ltd, a leading provider of software solutions for the tourism industry. Rategain assists the hospitality sector with dynamic pricing strategies through its Software-as-a-Service (SaaS) platform. Using AI technology, Rategain enhances customer engagement for clients such as hotels, airlines, and online travel agencies by optimizing pricing and service offerings. The company uniquely bridges the information gap in the industry by compiling and analyzing traveler data to improve industry-wide service delivery. From 2020 to 2024, sales increased at a CAGR of 30%, and net profits rose by 75%. The RoE and RoCE averaged 6.6% and 4.1%, respectively. After a challenging period due to COVID-19, Rategain has shown remarkable recovery, turning into profitability from FY22. In FY24, sales grew by 69% YoY to ₹9.5 billion, while net income more than doubled compared to FY23. Strong revenue growth was complemented by improved operational performance with margins at 19.8% for FY24. The SaaS business contributed 32.9% of the total revenue for FY24, driven by strong traction with key enterprise accounts and new clients in airlines, OTAs, car rentals, and cruise liners. The distribution segment accounted for 22.1% of the total revenue, recognized as an elite connectivity partner by Expedia for the second consecutive year. The marketing and technology (martech) business contributed 45% of the total revenue, supported by robust growth in the paid digital marketing segment and continued success in social media management with leading hospitality brands in North America. The company aims to increase its revenue from approximately ₹10 billion in FY24 to ₹20 billion over the next three years, targeting a 26% CAGR with 20% from organic growth and 6% from inorganic growth. It also plans to maintain a debt-free balance sheet. CMS Info Systems Ltd offers logistical and technological services to financial institutions, focusing on ATM-managed services, technology solutions, and cash logistics. The company is renowned for its expertise in cash logistics, ATM software solutions, and AIoT (Artificial Intelligence of Things) remote monitoring. CMS Info Systems has established a presence in 97% of Indian districts. From 2020 to 2024, CMS Infosystems achieved a CAGR of 15% in sales and 30% in net profit. The RoE and RoCE averaged 19.4% and 27.1%, respectively. The company generated revenue of ₹22.6 billion in FY24, reflecting a growth rate of 18% YoY, while net income grew by 16.8% YoY to ₹3.4 billion. Looking forward, the management expresses confidence in its mid-term outlook for FY25, targeting ₹25-27 billion in revenue. It is also expecting higher capex for FY25 due to underspending in FY24. These companies are tapping into market opportunities and maintaining upward growth trends. However, such companies can be volatile, testing investor patience during market fluctuations. By staying aware of market changes and taking advantage of opportunities, investors can make the most of positive trends while protecting their investments from potential risks. Happy investing!