India’s benchmark Nifty index has likely bottomed out near the 22,000 level, paving the way for large-cap stability as foreign institutional investor selling nears its end, according to Sandeep Tandon, Founder and Chief Investment Officer at Quant Mutual Fund. However, he went on to warn that a sharp capitulation is just beginning in a crowded basket of roughly 150 mid-cap stocks.
In an interaction with CNBC-TV18 on Thursday, October 22, Tandon said, the primary area of concern lies in a specific segment of new-age and mid-cap companies that experienced extraordinary euphoria over recent quarters.
Domestic mutual funds, family offices, and ultra-high-net-worth individuals heavily crowded into these names, are driving valuations to unsustainable levels compared to global peers, Tandon said, adding that these equities are “very expensive, grossly over-owned, grossly overvalued,” with a “vomiting phase” currently underway as investors begin to unwind positions.
The impact of redemptions in this narrow 150-stock basket will be deep, making it an area to avoid even as the broader market looks appealing, he warned.
Conversely, the outlook for frontline stocks is strengthening. Foreign institutional investors are showing signs of returning after a period of intense selling that saw many hedge funds close their India-centric portfolios.
Traditional long accounts have increased their participation over the past 15 to 20 days, a trend reflected in recent qualified institutional placements. Capital is poised to shift back toward India, which has outperformed emerging market peers like Taiwan, Korea, Japan, and China during recent market falls.
Investors should use the current market weakness to rebuild exposure in large caps, particularly focusing on relatively high-beta names, Tandon said. He highlighted asset-heavy companies, utilities, power, pharmaceuticals, and telecom which remain strong themes.
Supporting the macroeconomic picture, NYMEX crude appears to have peaked and is expected to decline gradually over the next two months as supply conditions improve, despite ongoing challenges with logistics costs. Tandon expects global volatility to also settle following the Israel election outcome on the October 27 and the US election on November 3.
On the information technology sector, the approach remains constructive but cautious. While the space was previously neglected and oversold, a decisive bottom in the earnings cycle is still missing. “We can say with good amount of confidence the worst is behind us, but best is yet to begin,” the Chief Investment Officer of Quant MF explained. Maintaining selective exposure is advisable as companies gradually transform through artificial intelligence adoption, rather than taking aggressive long positions, he added.
For the full interview, watch the accompanying video
Sandeep Tandon sees buying opportunity in largecaps, warns of further pain in crowded midcap stocks
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