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  • December 11, 2018
    Quantum Equity Team

    November 2018 turned out to be a positive month for equities after back to back declines in September and October. S&P BSE Sensex appreciated 5.19% during the month. The index has given a return of 7.57% in the 11 months of year 2018. Mid cap and small cap indices also gained during the month. 2.99% and 1.66% were the returns for S&P BSE Mid cap and Small cap respectively. However, the return of BSE Mid cap and small cap till the penultimate month of 2018 stands at -14.8% and -24.4% respectively. They haven’t been able to recover massive losses suffered in earlier months.

    Consumer durables, real estate and capital goods were sectors which appreciated the most during month. Metals, healthcare and power contributed to drag in performance and ended in negative territory.

    Market Performance at a Glance
     Market Returns %*
     November 2018
    S&P BSE SENSEX **5.19%
    S&P BSE MID CAP **2.99%
    S&P BSE SMALL CAP**1.66%
    BEST PERFORMER SECTORSConsumer durables, real estate and capital goods
    LAGGARD SECTORSMetals, healthcare and power
    * On Total Return Basis
    ** Source-Bloomberg

    FIIs were buyers in Indian stocks for the month of November with trades of USD 868 Mn. In the year 2018 till date FIIs have been sellers to the tune of USD 4.9 Bn. Domestic institutions (DIIs) bought equities worth USD 125 Mn during the month, lowest in past many months. Cumulatively in 2018 DIIs have invested USD 15.8 Bn in stocks. With weakness in US dollar, Indian rupee gained 5.9% during the month ending below 70 to dollar.

    Among international finance news, US Fed indicated that interest rates were just below neutral. This signifies that it would not hike interest rates meaningfully in 2019 as assumed earlier by markets. The comments led to a rally in stocks. US dollar was very strong in 2018 appreciating against all currencies. This may change in 2019, if interest rates don’t rise much there.

    There could be rise in interest rates in other developed economies such as Europe and Japan. Many had zero interest rates so far. Rising global rates lead to higher cost of capital and there could be sell off in emerging markets including India, at least in the short run. Other important development for the global financial markets centres around Brexit. Not only is it likely to slow the growth there but also have ramifications for many economies and companies including Indian.

    A recent relief for Indian economy has been the fall in international crude prices. Much dreaded sanctions on Iran didn’t apply to India. Oil prices breached USD 80/bbl and speculators saw it going to USD 100, currently stand at USD 60 offering relief. There has also been a fall in inflation, which stands at 3.3% for October. Interest rates which were on rising trend, are likely to pause given inflation is running below RBI estimates.

    The month also saw differences between Govt and RBI playing out in public, which had started in previous month. RBI’s committee would look into some of the issues raised. This includes relaxing norms for PCA (prompt corrective action) banks and using the reserves of RBI to extinguish public debt.

    There was no change in stocks held in scheme which currently stand at 25. We added to our weight in some of the stocks during the month. Cash in the portfolio stands at aprox 7%.

    There has been a good correction in stock prices in months of September and October. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can 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


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article 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. 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.

  • December 11, 2018
    Quantum Fixed Income Team

    The constructive momentum from October carried over and picked up steam in November on the backdrop of sharp fall in crude oil prices and downside surprises in the domestic inflation readings. Additionally, the increased pace of open market purchases by the RBI also turned the market demand supply dynamics in favor of bond bulls.

    The yield on 10 year benchmark government bond fell by around 60bps from its recent peak of 8.2% to near 7.6% by the month end. The yield softening was more prominent in the short end of the curve as 2-5 year rates fell by more than 70 bps in the same period.

    Sentiment in corporate bonds also revived notably resulting in increased activity in both the primary and secondary markets. Though credit spreads over similar sovereign bonds persist at elevated levels than pre IL&FS default.

    Foreign portfolio investors also had drawn some comfort lower crude oil prices and already beaten down INR. They invested close to INR 120 billion (USD 1.7 bn) combined into the Indian equity and debt markets in the month. The Indian Rupee also appreciated by 5.9% to end the month at 69.6/USD as against 74 per USD a month earlier.

    In its bi-monthly review meeting, the monetary policy committee (MPC) of the RBI left the key policy rates unchanged with the Repo rate remaining at 6.5% and sharply lowered its inflation projections.

    With over 60bps softening in bond yields, the markets were already pricing for a dovish tone from the RBI. Yet the comments from the RBI governor and dy governor in the press conference about possibility of rate cut and continuation of current pace of OMO surprised the markets positively. Bond yield fell further after the policy with the 10 year government bond now trading near 7.4%.

    On liquidity front, the RBI has conducted Open Market Operations (OMO) to purchase government securities worth INR 1.27 trillion between April-November 2018 and has already announced another INR 400 bn of OMO in the month of December. Going by the past trend the pace of cash withdrawals (Currency in circulation) may moderate in coming months. We expect another INR 600 bn of OMOs in the current financial year.

    While the inflation trajectory has positively surprised the market and policymakers in the last two quarters, much of this has come from food prices remaining at depressed levels. In India food inflation is very prone to supply shocks and has a highly volatile history. The RBI has also considered it as one of the major risk to their inflation projection as it mentioned “…the prices of several food items are at unusually low levels and there is a risk of sudden reversal, especially of volatile perishable items…. uncertainty continues about the exact impact of MSP on inflation, going forward.”

    Apart from the food inflation, the medium-term outlook for crude oil prices is also very uncertain due to global demand conditions, geo-political tensions and decision of OPEC which could impinge on supplies.

    Going ahead, bond yields will be driven by developments in the food and fuel markets and will possibly remain volatility in near term.

    In our opinion the current levels of benign food inflation is not sustainable and could cause more distress in the rural economy despite higher agricultural productions. This can also derail the government’s electoral promise of doubling the farm income by 2022.

    The RBI will likely keep the rates on hold in rest of FY19 and hike in the second half of 2019 if inflation rebounds.

    We maintain our cautious stance on bonds as we still see higher chance of rebound in the inflation readings and the fiscal deficit target also looks challenging.

    Going into 2019 as central banks such as US FED and ECB reduce liquidity it may have impact on markets and interest rates globally.

    We advise investors to remain cautious about the interest rate and credit risk in their debt fund portfolio and focus on short duration (short maturity bonds) and good credit quality funds only. Shorter-dated bonds are by no means immune to rising rates, but their returns tend to be less volatile than longer term bonds.

    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 AAA 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 returns and can be highly volatile or even negative in a shorter time frame.

    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 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.

  • December 11, 2018
    Quantum Alternative Investments Team

    Amidst the expectations of continued rate increases by the Fed, better unemployment and wage data furthered the case and in turn boosted the dollar and pressured gold prices. However, as Powell caved into Trump’s growing criticism, the Fed chief sighted global worries as a reason to me more dovish on the interest rate trajectory. This provided a fillip to gold prices. Uncertainty surrounding the political situation in the U.K. and the U.S. - China trade war lent support to gold prices. For the month, gold prices closed at $1,222.50, a gain of 0.6% taking the year to date tally to -6.2%.

    The US mid-term elections have come out more or less as expected. President Donald Trump’s party lost full control of Congress in the U.S. midterm election. Democrats narrowly won the U.S. House by riding a surge of voter anger and discontent with Trump in suburban enclaves. Democratic control of the House may damp prospects of further tax cuts, requiring the Federal Reserve to implement fewer rate hikes, which will weigh on the dollar.

    Fed Chair Powell certainly made a dent in the Fed’s hawkish armor by saying interest rates are just below neutral. Minutes from Fed’s last meeting also signaled that policy makers will adopt a more flexible approach after a likely December hike. Federal Reserve Vice Chairman Richard Clarida said that U.S. interest rates are getting closer to the vicinity of neutral, and that “the global economy is something” the Fed has to pay attention to. Although this doesn’t give tremendous clarity considering that neutral is said to be between 2.5-3.5%, it does emphasize that the Fed will be data dependent and is not on a preset path any more. However, these dovish remarks stood in complete contrast to consensus expectations and thereby pressured dollar and lifted gold out of doldrums.

    The U.S economy has really been a mixed bag. It’s chugging along well on the employment front but signs of caution emerge from other areas of the economy. The U.S. economy added more jobs last month than forecast and wages accelerated- to put that in context - American workers got the biggest pay increase since 2009 and the unemployment rate held at a 48-year low. Joblessness stood at 3.7 percent in October, well below the rate the Fed sees as sustainable in the longer run. Any tick up in unemployment next year could see a pricing out of hike expectations. At the other end, there are visible signs of slow down as well. U.S. Manufacturing gauge dropped to lowest level in six months. Home price increases in 20 major U.S. cities grew in September at the slowest pace in nearly two years, adding to signs that buyer interest is waning amid higher mortgage rates and elevated property values. This marks the sixth straight month of deceleration in price gains, with sales and home-building also showing signs of weakness.

    Outlook

    The momentum in the U.S. economy seems to have peaked. The impact of cheap liquidity which was followed by tax sops from Trump created a cyclical momentum which certainly seems slowing. There are visible signs of interest sensitive sectors meaningfully slowing down due to increasing borrowing costs. US existing home sales have declined year-on-year for eight straight months, falling by 5.1% YoY in October, while new home sales declined by 12% YoY to an annualised 544,000 units in October, the lowest level since March 2016.

    There’s no doubt that Powell was deliberately preparing the market for a pause in the once-a-quarter rate hikes in 2019. 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. All eyes will now be on the Federal Open Market Committee’s final gathering of this year on December. 18-19 to glean further clues on what may happen. Recent commentary suggests that the leadership of the Fed might be closer to dialing back expected hikes for 2019. Policy makers penciled in three quarter-point increases next year, according to the median of forecasts in September’s so- called dot plot. That could fall to two when officials update forecasts at the December. 18-19 meeting. In language following that policy meeting, officials may convey sufficient softening of future expectations. Once you get to the consensus view that the Fed may be done, the dollar may come under severe pressure and gold should do well.

    The scheduled end of quantitative easing in the Eurozone is an important development from a global perspective since it means that G7 central banks’ aggregate balance sheet contraction is likely to accelerate in 2019. The unwinding in Europe accompanied by end of tightening in the U.S will put significant pressure on the U.S dollar. At the other end, markets will definitely feel the pinch of lower liquidity amidst rising interest rates. If markets falter on account of these tightening measures, the ensuing risk aversion could bring some buying back to gold.

    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

    Source: Bloomberg, World Gold Council


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article 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. 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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