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  • February 08, 2019
    Quantum Equity Team

    First month of 2019 was positive for Indian equities. The S&P BSE Sensex rose 0.5% during January. S&P BSE Mid cap and S&P BSE Small cap stocks had a different case however. S&P BSE Midcap and S&P BSE Smallcap index had declined by 5.7% and 5.3% respectively for the month. IT, consumer durable and banking were sectors which performed well during the month. Auto, capital goods and metal stocks were laggards in January 2019.

    Market Performance at a Glance
     Market Returns %*
     January 2019
    S&P BSE SENSEX **0.5%
    S&P BSE MID CAP **-5.7%
    S&P BSE SMALL CAP**-5.3%
    BEST PERFORMER SECTORSIT, consumer durables & banking
    LAGGARD SECTORSAuto, capital goods & metal
    * On Total Return Basis
    ** Source-Bloomberg

    FIIs in the month of January were inactive with sell orders of USD 75 million. Domestic institutions were net buyers during the month to the tune of USD 300 million approximately. Mutual funds were buyers of USD 1.2 billion while insurance companies sold stocks worth USD 880 million. The Indian Rupee depreciated 1.9% during the month.

    The U.S. Fed in its meeting during the month indicated that it will be patient with raising interest rates. It will also go soft on normalization of its balance sheet, meaning it will be less aggressive in reducing the balance sheet size. This news was cheered by the equity markets. Fears related to recession and trade sanctions led the U.S. Fed to change its stance. Over the long term, interest rates will rise in developed markets. This will be detrimental to stock prices in emerging markets including India. Investors getting higher return in home markets will likely reduce exposure to riskier emerging markets as interest rates move up overseas.

    A major event at the start of February was presentation of the interim union budget. The budget presented had an eye on elections. A number of schemes were launched for the agriculture sector of which guaranteed money transfer to farmers was highlighted. Salaried tax payers also stand to benefit with increase in exemption for paying income tax. Government borrowing and fiscal deficit is likely to increase due to welfare schemes and forego tax revenue. Sectors such as housing also stand to benefit from budget proposals. However, since this is an interim budget, its measures can be reversed if the new Government takes charge.

    January month saw a number of listed companies announcing their third quarter results. There was heightened volatility in a media stock after rumours of involvement in money laundering of a group related company. This was further accentuated by selling of its pledged shares by financiers. Another housing finance company was targeted by a media house of loans being routed to founders. Many stocks with links to these entities were hit.

    There has been a good correction in stock prices in the past few months since September 2018. Many stocks which looked highly valued earlier now seem to come within reach. As desired, we were able to add few good quality stocks using the recent opportunity. Scheme cash level now is in low single digits, offering decent potential return. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many countries. Investors can thus expect decent return from equities over a long period in future. Investors should put more money given that valuations appear more reasonable. They now appear less risky than earlier.

    Data Source: Bloomberg


    Product Labeling
    Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
    Quantum Long Term Equity Value Fund

    (An Open Ended Equity Scheme following a Value Investment Strategy)
    • Long term capital appreciation

    • Invests primarily in equity and equity related securities of companies in S&P BSE 200 index
    Quantum Long Term Equity Fund
    Investors understand that their principal will be at Moderately High Risk
    * Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

  • February 08, 2019
    Quantum Fixed Income Team

    The Year 2019 started with some bearishness in the bond market. After witnessing a sharp fall in bond yields in the last quarter of 2018, bond yields rose steadily at start of the year (when bond yields rise, bond prices fall). This was mainly due to reversal in the global crude oil prices which rebounded more than 20% from it’s recent bottom.

    Apart from the volatile movements crude oil, government’s fiscal slippage and the RBI’s open market operations also generated push pull effect on the yield curve and resulted in divergent movement in yields on different maturity profiles.

    The yield on the most traded 10 year government bond (7.17% GS 2028) rose from the bottom of 7.22% in late December and is now trading near 7.5%. The new 10 year bond, which was priced at 7.26% in auction on January 14, moved up closer to 7.4% and is now trading near 7.3%.Similarly all other long tenure bonds witnessed a moderate rise in the yields. However, yields on the shorter maturity bonds (1-5 year maturity) declined by 10-20 basis points since start of the year. We believe this divergence was primarily on account of the RBI’s open market operations (OMO purchases – when RBI buys government bonds from the market).

    The spread (difference) of yields on state governments bonds and PSU bonds over respective government securities have also widened in the last one month. The RBI increased its pace of OMO operations in December and January to purchase government bonds worth Rs. 500 bn per month.

    In its last bi-monthly policy of this fiscal year 2019, the monetary Policy Committee (MPC) of the RBI cut the policy Repo Rate by 25bps to 6.25% and changed the monetary policy stance from ‘Calibrated Tightening’ to ‘Neutral’. Although the rate cut was not widely expected, it was in line with the benign inflation trend and softer global outlook.

    The RBI revised down its inflation projections yet again pegging the CPI inflation below its target of 4% for the entire 2019. Hence there is a high probability of another 25 bps reduction in the Repo Rate; but this is not going to be a deep rate cut cycle.

    We see multiple upside risks to the RBI’s inflation projection of sub 4% which if materialises will reduce market expectations of any further rate cut. The government both at centre and states have increased their expenditure substantially in last two years and most of it is going towards rural sector which can have considerable inflationary impulse.

    In the interim Union Budget, the government once again deviated from its fiscal consolidation roadmap expanding the FY19 fiscal deficit to 3.4% of GDP from the initial budget estimate of 3.3%. The fiscal deficit target for FY20 is also raised to 3.4% of GDP as against 3.1% as per the FRBM glide path. The fiscal slippage was mainly due to newly introduced Farm Income Support Scheme with a proposed expenditure of upto Rs. 200 bn in FY19 and Rs. 750 bn (0.3% of GDP) in FY20.

    We believe that some of the tax growth assumptions especially on GST and Excise taxes are aggressive and may not be realized. There is a genuine worry the bond markets will assume a lower tax growth for the next year and thus budget for an even higher fiscal deficit number.

    In order to fund the fiscal slippage the central government has announced to borrow an additional Rs. 360 bn through dated securities and Rs. 80 bn through treasury bills in March 2019. In the financial year 2019-20 the centre’s Gross market borrowing is pegged at Rs. 7.1 trillion (vs Rs. 5.71 trillion in FY19) while the net borrowing will be Rs. 4.73 trillion.

    The bond supply is not only of the Centre but gets overwhelmingly large when we combine market borrowing by state governments and quasi government (PSUs). The markets will have to absorb almost Rs. 5.3 Trillion in Bond issuances by State Governments, most of whom have also casually abandoned their fiscal rectitude.

    On the global front the US Federal Reserve kept its benchmark interest rate unchanged, in line with expectations, but delivered a surprisingly dovish message as they went from having balance sheet normalization on “autopilot” to implying a potential reduction in that pace. The dovish shift in FED’s tone has put to rest any concerns of overtightening and thus let to positive narrative on emerging market assets.

    Although the RBI’s stance and global outlook looks favorable for bonds markets, we are concerned about excessive supply of bonds in coming quarters. Demand supply dynamics is likely to turn against the longer maturity bonds as supply from centre and state government will increase and on the same time pace of RBI OMOs are likely to slow down.

    Additionally we are entering into an uncertain election cycle; we believe foreign investor demand will also remain muted until there is clarity on the next government and its likely macro-economic policies. So despite, a general wave of bullishness towards emerging markets on the US Federal Reserve’s dovishness, India is unlikely to be a key beneficiary till at least May 2019.

    We continue to maintain a neutral stance on the bond market over medium term. However, given the high near term uncertainties, we advise investors to avoid much exposure to interest rate risk and should stick to debt funds with low maturity profile and good credit quality.

    We believe that the credit crisis that begun in the Indian bond markets after the IL&FS default in September is not over yet and the widening of spreads between corporate and sovereign yields is reflective of lack of investor confidence in the credit market.

    Quantum Liquid Fund (QLF) prioritizes safety and liquidity over returns and invests only in less than 91 day maturity instruments issued by Government Securities, treasury bills and top rated PSUs.

    Quantum Dynamic Bond Fund (QDBF) takes higher interest risks, but does not take any credit risks and is invested only in Government Securities, treasury bills and top rated PSU bonds. In line with our interest rate view, we are keeping a shorter maturity profile in the QDBF portfolio with an objective to have lower interest rate risk. However, we keep looking for signs of mispricing in market and position the portfolio to exploit the opportunity tactically.

    We always advise investors to have a longer time frame if they invest in bond funds and should also note that the bond fund returns are not like fixed deposit and can be highly volatile or even negative in a shorter time frame.

    We also advise debt fund Investors to continue to choose Safety (over Credit) and Liquidity (over Spreads and Returns) while investing in Bond Funds in 2019

    Data Source: Bloomberg, RBI


    Product Labeling
    Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
    Quantum Dynamic Bond Fund

    (An Open Ended Dynamic Debt Scheme Investing Across Duration)
    • Regular income over short to medium term and capital appreciation

    • Investment in Debt / Money Market Instruments / Government Securities
    Quantum Long Term Equity Fund
    Investors understand that their principal will be at Moderately Risk
    Quantum Liquid Fund

    (An Open Ended Liquid Scheme)
    • Income over the short term

    • Investments in debt / money market instruments
    Quantum Long Term Equity Fund
    Investors understand that their principal will be at Low Risk
    * Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

  • February 08, 2019
    Quantum Alternative Investments Team

    Keeping up with seasonal trends, this January too was positive for gold. It’s usually the physical buying from China and India that drives gold prices. However, this time it was the Investment demand that took the lead. Slowdown in global growth, volatility in equity markets, dovish central banks and geopolitical worries have led to increased uncertainty; thereby driving investors to look for diversification that really works. The Fed pivoting away from its bias toward tighter policy is complete U-turn from their robust economy rhetoric in October and has really been the trigger for gold to move higher. Gold prices closed the month at $1321.21 per troy Oz, up by +3.21 % this year and set for a fourth straight monthly gain, while the dollar is down for a third month.

    Recent dollar weakness is a reflection of a shift in market sentiment based upon the Federal Reserve altering to a much more dovish tone over the last month. Market participants believe that the Fed will be much less aggressive in terms of the number of rate hikes initiated this year. Also, there has been talk for the first time about addressing their massive balance sheet liquidation which has been on autopilot since the Federal Reserve shifted their monetary policy to favor normalization. The FOMC judged that a relatively limited amount of additional tightening would likely be appropriate. The lingering US china trade war and the government shut down were other factors that kept the dollar under check.

    World leaders at Davos, the IMF and central bank chiefs across the globe are all of a sudden echoing slower growth. Just the end of QE on a global basis has pushed the financial world over a cliff. Increase in interest rates, lower liquidity and trade wars is leading to economic adjustments that the world is nowhere prepared for. Consequently, ECB is also no longer in any rush to start balance sheet contraction with Mario Draghi’s acknowledgement that “the risks surrounding the euro area growth outlook have moved to the downside”. If the weakening Eurozone data has forced Draghi to back off the normalisation narrative, he will still be hoping that he can avoid resuming balance sheet expansion before he steps down at the end of October.

    Outlook
    The Fed raised rates four times in 2018 and is now holding the benchmark interest rate in a range of 2.25 to 2.5 percent. It was getting pretty obvious that at some point Powell would have to flinch given some evidence of slowdown as tighter policy starts impacting the economy. In this current rate hiking cycle, the Fed has raised rates 9 times but also has already sold off about a half trillion dollars from its balance sheet. A reduction of this size in the balance sheet, which is a huge liquidity squeeze from the financial system, is something never before done or even attempted. Add to this the fact that total non-financial debt in the US has surged from $33.3T (231% of GDP) at the start of the Great Recession in December of 2007, to $51.3T is creating a huge interest burden in a rising interest rate environment.

    By just indicating that the FOMC might be close to finishing its rate hiking campaign, while still selling nearly $50 billion of bonds every month from its balance sheet, the Fed is still tightening monetary policy. Despite the Fed’s more dovish tone of late, investors cannot rule out further rate hikes in 2019. There’s increased optimism about some type of agreement on trade between the U.S. and China, and can result in equity markets turning supportive of a rate hike. This removal of lingering trade uncertainty and further tightening could result in some pull back in gold prices.

    As the Fed continues to tighten in 2019, there is a clear risk that Fed tightens much more than the economy can handle as the underlying cyclical recovery is largely fueled by stimulus, tax cuts and cheap liquidity. The inverted yield curve with potentially put further brakes on economic expansion and undermine confidence and investments. This will have a profound impact on asset markets as this will fuel debate on recession and markets start pricing in a more pessimistic growth outlook than the Fed as it believes that the Fed will overtighten. Yet this will become a stance increasingly hard to maintain in the face of not only falling stocks but also, much more importantly, rising credit spreads as it will badly impact the high yield market which increasingly looks like a bubble. If the Fed takes a u-turn in policy as a response to slowing growth and falling asset prices by beginning to cut rates or adopt further unconventional measures like QE; it will be perceived by the markets that the central banks will not be able to normalize monetary policy and that will be a big boost for gold prices.

    2018 was the first time central banks tried to remove some liquidity from the market after a decade of stimulus. Central banks have tried to get out of this low-interest-rate trap but they aren’t able to. The market is addicted to cheap liquidity and doesn’t look like that is going to change anytime soon. The world continues to remain in state of great disequilibrium, both with respect to the global economy and geopolitics as well. Given the macroeconomic picture, gold will be a useful portfolio diversification tool and thereby helping you to reduce overall portfolio risk.

    Source: Bloomberg, World Gold Council


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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