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  • May 10, 2019
    Quantum Equity Team

    Equities had a modest performance in April as compared to stellar rise in March when S&P BSE Sensex had risen 7.9%. The benchmark rose 0.93% in April. In comparison, midcap and smallcap indices witnessed a decline. S&P BSE Midcap and Smallcap fell by 3.80% and 2.66% respectively during the month gone by.

    In the 4 months of 2019 calendar, S&P BSE Sensex has risen 8.42%. In comparison, BSE Midcap and Smallcap indices have fallen 3.4% and 0.43% respectively. IT and metal were among the few sectors that performed well during the month. Good results from some of the IT companies during the month helped stock prices.

    Market Performance at a Glance
     Market Returns %*
     April 2019
    S&P BSE SENSEX **8.42%
    S&P BSE MID CAP **-3.4%
    S&P BSE SMALL CAP**-0.43%
    BEST PERFORMER SECTORSIT and Metal
    LAGGARD SECTORSTelecom, Power and Real Estate
    * On Total Return Basis
    ** Source-Bloomberg
    Past Performance may or may not be sustained in future.

    Telecom, power and real estate were among the sectors which declined the most during April. FIIs pumped in USD 1.54 billion in Indian stocks. So far in 2019, they have invested USD 9.77 billion.

    Domestic institutions were net sellers during the month to the tune of USD 600 million. While MFs sold USD 820 million, insurers were buyers of USD 220 million. DIIs sold stocks worth USD 2.4 billion in 2019. Indian rupee depreciated 0.59% during the month against US dollar. Macroeconomic concerns related to crude caused a decline in currency.

    Among international events, UK’s exit from EU was postponed from end March to October 2019. This followed the rejection of British PM’s Brexit agreement. There was a good progress reported for trade negotiations between US and China. Many investors believe that current stimulus driven growth in China will continue and lead to higher growth there as well as in emerging markets and thus higher money flows.

    US has paused hike in interest rates. This may change in future as economy there picks up. In the Eurozone there are signs of slowdown led by lower manufacturing activity in Germany, prime driver of the economy. Shift in monetary policy to tighter one can see reversal of money flows from emerging markets including India. Western investors may choose their home markets as yields improve, shunning risky markets.

    By April end, Lok Sabha elections were over for 4 phases. Balance 3 phases are to be completed and results are on 23 May. Equity markets are likely to remain range bound till then. Any disappointment in results could lead to a decline in markets as most participants don’t expect fragmented coalition. Indian companies aren’t committing fresh capital expenditure, awaiting the policy after new Govt. is in place.

    Many companies have announced their fourth quarter results. Trends from earning season suggest a consumption slowdown. Sectors such as auto have seen decline in sales. There has also been pressure faced by mid to small finance companies. This has also affected real estate sector which depended on them for funding.

    Overall earning growth in current year (FY20) is likely to be better than last year. One of the major swing factors would be corporate banks. They had lot of NPA related provision last year which is likely to be much lower owing to peaking of bad assets. Within that however there are some consumption related sectors which will see a downgrade in earnings by analysts.

    On the macro side, crude prices have seen a rise hurting Indian economy. US announced an end to waiver on sanctions of crude purchase. India was one of the countries benefiting from waiver and now Iran output is set to dwindle affecting oil prices. Consumer inflation remains under control. RBI lowered interest rates during the last month by 0.25%.

    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 returns from equities over a long period in future.

    Data Source: Bloomberg


    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.

  • May 10, 2019
    Quantum Fixed Income Team

    Bond yields across all the market segments and maturity profile trended up in the past month mainly due to surge in crude oil prices and increased supply of government debt in weekly auctions. The 10 year sovereign bond ended the month at 7.41% vs 7.32% in the previous month.

    In addition to the upward shift the yield curve also witnessed a flattening as the yield on shorter maturity bonds jumped by higher proportion than longer maturities. The yield on 3-5 year maturity bonds moved up by 25-40 bps as against 9 bps on the 10year bond.

    The money market had a divergent trend through the month. The yield on 1-2 month PSU securities dipped to near 6.7% for short period at start of the month but rebounded sharply towards the month end to close near 7.3%. This was partly due to tight liquidity conditions though it’s also reflective of the ongoing concerns in the credit market.

    The credit market remained in tough spot with credit risk rising in the aftermath of the IL&FS default. There have been series of rating downgrades/defaults which negatively affected various debt mutual funds schemes and thus dampened the investors’ sentiment. The impact of it was not limited to the lower credit space as good quality liquid issuers also witnessed selling pressure and rise in cost of funds. Good quality PSU papers of 1-2 months maturities are now trading at unusually high spread of over 130 bps above the overnight repo rate. We find these levels attractive for good credit quality money market papers though we maintain our negative stance on the credit market.

    For long maturity bond yields, the larger focus will remain on the crude oil prices, demand supply dynamics and the RBI’s monetary policy. Moreover, election results and monsoon patterns can also affect the direction of bond yields.

    The crude oil has been on upward path since start of this year amid supply reduction from the Saudi and Russia led cartel of oil producers. Apart from this political turmoil in Libya & Venezuela and sanctions on Iranian oil imports have also created upward pressure on the prices. The brent crude oil price rose by over 33% in the last four months and currently trading near USD 71 per barrel.

    We cannot rule out a possibility of further rise in the crude oil prices especially if the market moves away from the Iranian Oil supply. However, we are of the view that any spike in oil prices from here will be temporary as slowing global economy and excess capacity with the OPEC members will put downward pressure on the prices.

    The other major determinant of bond market will be demand supply dynamics which will be largely dependent on the RBI’s open market operations (OMO) and foreign investment flows. Recently the RBI has introduced a new liquidity tool long term USD/INR swap which is an alternative to OMOs for managing durable liquidity in the banking system. After conducting two back to back 3 years FX swaps of USD 5 billion (~INR 350 billion) each in March and April, the RBI has now announced to conduct OMOs worth Rs. 250 billion in the month of May. Future demand supply dynamics in bonds will be dependent on evolving liquidity situation and the RBI’s choice of instruments to manage that.

    On the monetary policy, we have changed our outlook after the minutes of the MPC meeting held on 2-4 April 2019. Now we expect further 25-50 bps cut in policy repo rates in coming quarters. The minutes indicate that the slowing economic growth momentum has taken a Centre stage in policy formation. The tone of most members appeared tilted towards supporting growth. There were differing views on the inflation outlook but is broadly seen under the RBI’s 4% target.

    At 6% Repo Rate, the 10 year government bond yield near 7.4% looks attractive from a valuation standpoint. However, the uncertainty on oil prices and on the election outcome may cause some near term volatility in the bond yields.

    Investors in bond funds, as always will have to remain aware of the near term volatility in interest rates and invest only with a view of over 2-3 years. As mentioned above, Oil prices and Election outcomes will now hold sway and although long term bond yields are attractive from a valuation standpoint, but its direction in the short term is uncertain.

    Dynamic Bond Funds, which allow the fund manager the flexibility to change the portfolio positioning depending on the emerging situation is a better alternative if you wish to allocate to bond funds. While choosing a debt or money market fund, investors should prefer funds which take low credit and liquidity risks.

    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.

    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 Moderate 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.

  • May 10, 2019
    Quantum Alternative Investments Team

    Recent spate of consensus beating economic data in the U.S. along with dollar breaking out to 52 week highs pressured gold prices. Better than expected Chinese export and credit growth were also seen as evidence of recovery against chants of a grim global outlook. Optimism surrounding the U.S – China trade deal not only removed the uncertainty factor but furthered expectations of growth revival as many pundits cite trade wars as the primary reason for slowdown. Despite growth trends and forecasts pointing to a slow down and the resulting central bank dovishness, risk assets continued moving higher and gold continues to trade sluggish. All in all, gold prices ended the month at $1,283.5 an ounce, a decline of -0.7%. This third consecutive monthly loss brings gold at par to trade where it started the year.

    As the US enters late cycle, increasingly data points towards slowing growth but at times tend to depict contradictory readings causing volatility in currency, equity and gold markets. However, it’s too much to read one month’s data to conclude it as a change in trend. For e.g.: U.S. retail sales jumped by 3.6% in March as compared to 2.2% the previous month. However, it pales in comparison to the 6.6% seen in July of last year. Although, Jobs data sprang back to the positive, wage data displayed a downtick. Orders placed with U.S. factories for business equipment fell in February for the third time in four months. U.S GDP expanded at a 3.2% annualized rate for the first quarter, higher than all forecasts in a Bloomberg survey calling for a 2.3% increase. At the same time, the increase reflected a boost from inventories and trade; volatile components that may soon weigh on growth. The U.S. economy’s first quarter is looking a lot rosier than a few weeks ago, but the factors supporting that growth may be more momentary rather than a sign of sustained momentum.

    Powell Fed made it clear that they believe that the weakness of core inflation is transient and therefore not something that warrants a policy response. There by reiterating that the US monetary policy will be on hold for a protracted period. If the fall in core inflation is transient and growth is good and if the financial markets behave, there is no reason for the Fed to cut rates. Equally a rate increase is a distant prospect. This Fed dovishness with an accommodative bias is a significant U-turn which should be positive for gold but is currently supportive of the froth in stock markets, restricting flows to gold in the short term.

    Outlook

    Federal Reserve officials are of the view that there are high hurdles to raising rates, while inflation continues to undershoot their target and risks abound. Fed is of the view that inflation is possibly being dragged down by “transitory” forces like portfolio management services, apparel prices, and airfares. It is hard to see the Fed lowering rates without signs of a more severe deterioration in economic indicators or a precipitous drop in inflation expectations. However, looking closely, the latest inflation decline appears to be more broad-based. Important component of the inflation jigsaw, services inflation is looking depressed by the slowdown in unit labor cost growth. Inflation has undershot Fed target for a significantly long time now. Sooner rather than later, if it further continues to remain low, Fed officials will eventually be forced to admit it is more persistent and rate cuts would likely be their first choice of action. Rightly so, sharp and ongoing decline in core inflation is what has driven markets to attach such a large probability to rates being cut this year which currently stands at 53% by the end of 2019.

    The U.S economic momentum earlier fueled by stimulus, tax cuts and cheap liquidity is clearly facing headwinds. The U.S. economy isn't doing great but that has not stopped the dollar from gaining value. The market's appetite for U.S. dollars is driven by a few factors, mainly its relative performance of the economy, equity markets, bond yields but most importantly, growth abroad. While U.S. interest rates are falling, the real yield differential moved in favor of the dollar because the economic outlook for the rest of the world is even worse. Buoyant U.S equity markets has been attracting significant flows, thereby further supporting the dollar. With rate hikes of the table, the slowdown in earnings growth may soon start reflecting in equity markets, alleviating another support for the dollar.

    If the Fed takes a u-turn in policy as a response to slowing growth, lower inflation or 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.

    In line with the comments from leaders of the two nations, the US –China trade deal seems a given and to a large extent is already priced in by the markets. However, that doesn’t mark an end to Trump trade wars. While one seems settling, other is brewing. EU said it’s preparing retaliatory tariffs against the U.S. over subsidies to Boeing Co., significantly escalating transatlantic trade tensions. The threat of new European retaliatory tariffs comes hours after Washington vowed to hit the EU with duties over its support for Airbus. While Trump threatens tariffs on various EU products including the probability of it extended to car and car part imports which could be a big blow for Europe. An intensification of the EU-U.S. trade war could soon be impacting global markets.

    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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