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  • April 05, 2019
    Quantum Equity Team

    March turned out to be a very rewarding month for equities. US Fed’s stance of raising interest rates came to a halt. This was followed by rally in most asset classes. S&P BSE Sensex rose 7.9% during the month. Small and mid-cap indices performed even better with appreciation of 9.8% and 8.2% respectively in indices.

    In the 3 months of 2019 S&P BSE Sensex rose 7.4%. S&P BSE Midcap and Smallcap index gained 0.4% and 2.3% respectively, owing to losses in earlier months of 2019. Auto, metal and capital goods were sectors that ended in negative territory during March. Liquidity problem and excess dealer inventory have caused slowdown for auto sector.

    Real estate, consumer durables and oil & gas stocks had double digit returns for the month. For the real estate sector, there was launch and listing of first REIT in India.

    Market Performance at a Glance
     Market Returns %*
     March 2019
    S&P BSE SENSEX **7.9%
    S&P BSE MID CAP **8.2%
    S&P BSE SMALL CAP**9.8%
    BEST PERFORMER SECTORSReal estate, consumer durables and oil & gas stocks
    LAGGARD SECTORSAuto, metal and capital goods
    * On Total Return Basis
    ** Source-Bloomberg
    Past Performance may or may not be sustained in future.

    FIIs rushed in to buy Indian equities in March. FIIs were buyers to the tune of USD 6.1 billion during the month. Their tally for 3 months of 2019 stands at USD 8.4 billion. Domestic institutions were net sellers for the month. They sold USD 2 billion worth of stocks. Mutual funds sold USD1.1 billion, while balance came from insurance cos. Year to date, DIIs have redeemed USD 1.8 billion worth of equities. Indian rupee appreciated 2.2% during the month against US dollar.

    Global macro-economic environment has gone through major change in the last few months. US Fed raised interest rates 4 times during 2018. Now there is unlikely to be a rate hike in near future given fears of recession. Euro area has seen decline in economic activity as measured by decline in PMI. In this scenario, investors have adopted a risk-on strategy and are pouring money in emerging markets including India.

    This scenario can change quickly. US continues to be strong with unemployment close to historic lows. Inflation is also running at 2%, near target level. Any progress on tariff deal with China would lead to growth concerns disappearing. And path of lower interest rates can reverse. In such scenario emerging market equities could come under pressure, at least temporarily. Western investors, if they get better return in home market will withdraw from risky assets such as emerging market equity.

    Election Commission announced dates for Lok Sabha elections which will be held in 7 phases between 11 April and 19 May. Election results are to be announced on 23 May. April onwards, Indian listed companies will announce fourth quarter and full year results. Corporate capex is likely to remain muted as companies are waiting for the new government and its policies before committing capital.

    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 single digits, offering good potential return.

    Upcoming elections could be weighing on the mind of markets and investors. History however suggests that Indian economy has grown well irrespective of single party or coalition govt. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can expect good return from equities over a long period in future. Investors should put more money given that valuations appear more reasonable. Markets 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.

  • April 05, 2019
    Quantum Fixed Income Team

    The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) delivered its first consecutive rate cut since it was formed in October 2016. The MPC had cut the Repo rate by 25 bps (0.25%) in February 2019 and they have now cut the Repo rate by another 25 bps in its April 2019 monetary policy review.

    These two 25 bps rate cuts takes the Repo Rate back to 6.0%, a level it had reached in August 2017, which was then followed by two successive rate hikes in June and August 2018 of 25 bps each. The Repo Rate thus has remained in a tight range of 6.0% - 6.5% in the last 2.5 years. But Market interest rates (bond yields), bank fixed deposits and lending rates have moved in a wider band and they are higher than the levels of 2016. This is instructive to know that RBI actions many not have similar impact on the market interest rates.

    The RBI and the MPC thus should move focus on the transmission of the lower Repo rate on to getting the banks to reduce the bank lending rates, lower EMIs. Lending rates continues to remain high and the overall economy is not enjoying the benefits of the lower interest rates as seen from the Repo Rate.

    There seems to be a need to add (infuse) more liquidity into the system which will allow market interest rates and lending rates to move lower. The RBI has indeed added large amounts of liquidity in the markets in the last year but we believe there needs to be further addition of liquidity to yet fully re-monetize the economy two years post demonetization (which had removed currency from circulation).

    The RBI will also have to communicate to the markets in an emphatic manner that interest rates can remain low for a period of time allowing market participants certainty in their actions.

    The 25 bps rate cut was as per market expectations, but 2 of the MPC members have again voted for no change. The markets were expecting a consensus (6-0) voting for a rate cut. The RBI has now reduced its inflation forecast by more than 0.5% (50 bps) over the last two policies but despite that the MPC hasn’t had consensus on rate cuts. We find this to be a bit puzzling and wonder if there are certain externalities which have not been factored in their forecast but which is worrying the MPC members. As based on their forecast, the MPC expects CPI inflation to average 3.4% in FY 2020. The Repo rate is at 6%. That gives an Average Real Repo Rate of 2.6% for the next year; well above its ideal level of 1.5%.

    The MPC has indeed retained the future monetary policy stance at neutral; they rightfully seem cautious about oil prices; have assumed normal monsoon and are more sanguine about growth prospects than what the current drop in activity suggests. This along with the 4-2 voting thus raises the bar for another rate cut despite the lower inflation projection.

    The bond market was priced for a 25 bps cut and for expectations of more to come, which we believe will be scaled back. The MPC meets next in June first week, by then, India would have known who has formed the next government and would have the first confirmation on the onset and likely progress of the monsoon. A non-BJP government and hazy monsoon outlook may keep the MPC on hold in June.

    Bond Yields has reacted upwards reversing the gains it had posted over the last week. At 6% Repo Rate, the 10 year government bond yield at 7.25% - 7.35% remains fairly valued. But on the prospect of higher bond supply, lower potential OMO purchases and uncertainty on further rate cuts, the bond yields will continue to remain at a higher level than what is required at the current state of the economy and monetary policy stance. Add to that, the uncertainty on oil prices and on the election outcome, the trajectory of longer tenor bond yields remain uncertain and may remain volatile. This aspect will continue to impede actual transmission of rates onto the economy.

    Investors in debt mutual funds should expect slightly lower returns from liquid funds as the rate cut reduces yields/accrual on short term instruments. Fixed Deposit Rates should remain range bound around the current levels; so will lending rates unless RBI takes steps to lower them. Investors in Bond Funds, as always will have to remain aware of the near term volatility in interest rates and invest only with a 2-3 year view.

    Data Source: Bloomberg, RBI


    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.

  • April 05, 2019
    Quantum Alternative Investments Team

    The increasing prospects of a U.S. - China trade deal, pick up in U.S. manufacturing and signs of stabilization in China weighed over Feds dovish stance on policy normalization. Despite Fed doubling on its dovishness by ending its balance sheet unwinding by September and taking rate hikes off the table for 2019, the dollar held relatively firm. Gold could not hold on its gains from poor jobs data that highlighted concerns over slowing global growth as stronger dollar and rising risk assets took sheen off the monetary metal. All in all, gold prices ended the month at $1292.3 an ounce, a decline of -1.6%. This second consecutive monthly loss reduces the year to date increase to +0.8%.

    As the U.S. enters a late cycle, increasing data would point towards slowing growth but at times tend to depict contradictory readings causing volatility in currency, equity and gold markets. In the U.S., hiring was the weakest in more than a year, even as wages rose more than expected and the jobless rate declined. Factory production slumped for a second month in February, whereas U.S. Institute for Supply Management gauge climbed from a two-year low in March indicating manufacturing expansion. A shift to the highest 12-month average in job-cut announcements in a decade, a key macroeconomic indicator, has negative implications. The unemployment rate in November 2008 was 7% when cuts were at the same level in a similar upward trajectory. It's now 4%. A low unemployment rate should soften the blow of job reductions, but the risks are clear. Importantly, U.S. Treasury yield curve inverted for the first time since the last financial crisis. The pattern is considered a signal of an impending recession, timing of which is difficult to determine.

    Fed Chairman Jerome Powell said that interest rates could be on hold for “some time,” taking into account the global risks weighing on the economic outlook and muted inflation. They reduced their projected rate increases this year to zero from two. It’s a really remarkable turn, as in just six months the U.S. central bank has gone from an outlook with interest rates in restrictive territory to a more neutral positioning with an accommodative bias. This change in stance should be supportive of gold prices. On the other side, dovish Fed may also support the froth in stock markets, restricting flows to gold in the short term.

    Outlook

    The Fed funds futures are now discounting one 25bps rate cut this year and a further 25bps cut in 2020. This contrasts markedly with the 50bps of rate hikes in 2019, discounted last November. The dramatic change in Fed stance also led to it announcing an end to quantitative tightening by September with a balance sheet of US$3.7 trillion which is 77% larger and US$1.6 trillion bigger than when quantitative easing commenced back in December 2008. The change in the Fed’s overall stance has been much more pronounced than the change in U.S. economic data. All the Fed hawkishness is clearly behind and has changed decidedly dovish which means that the fundamental backdrop for gold should be favorable than it was in 2018.

    The precious metal's late-2018 rally had fizzled in the face of a resilient dollar. Although, Fed's surprising shift has made some dent on U.S. currency's outlook, given the fact that European central banks retreat from the policy normalization agenda has been even more aggressive as compared to the Fed, it should lend some support to the dollar. In Europe, they could not embark on any tightening as growth and inflation have continued to disappoint and given the risk of political trouble facing the monetary union, it could not move further with any policy normalization.

    A U.S. - China trade deal where the existing Trump imposed levies are dropped, can certainly lift sentiments and bring cheer to asset markets. It could further spark debate of any probability of rate hike as well. However, we do not anticipate Fed to increase rates this year but such debate can keep gold prices under pressure in the short term.

    The U.S. economic momentum earlier fueled by stimulus, tax cuts and cheap liquidity is clearly facing headwinds. The inverted yield curve will 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. 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 are caught in a trap and will not be able to normalize monetary policy. This will be a big boost for gold prices.

    It is important to note the academic discussions at the Fed are in agreement of further unorthodox monetary policy which implies use of more unconventional tools like monetary easing (money printing) and even negative interest rates. This significantly increases the probability of the Fed to move quickly towards lowering rates to the zero bound and other unconventional tools used on first signs of recession in the United States. Such ill-conceived policy making can be a positive trigger for gold.

    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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