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  • November 13, 2018
    Quantum Equity Team

    October 2018 turned out to be a month where equity investors earned negative returns. S&P BSE Sensex fell 4.82% during the month (total return basis). The decline followed previous month, the index had fallen 6.21% in September. For the 10 months of 2018 calendar, S&P BSE Sensex has given meagre returns of 2.26%. Mid cap and small cap stocks were able to arrest decline better during the month. S&P BSE Mid cap index fell 1% while S&P BSE Small cap index had 1.58% negative returns. On year to date basis, the decline has been much sharper at 17.29% and 25.6% respectively for Mid cap and Small cap respectively.

    Among sectors, the biggest losers were oil & gas, auto and IT. Oil & gas stocks came under pressure as crude prices rose and government asked oil marketing companies to bear a part of the burden by selling at lower prices to consumers. There were also fears that they may have to absorb higher subsidies than previously thought. Capital goods, power and banking were sectors that did well during the month, all in positive territory.

    Market Performance at a Glance
     Market Returns %*
     October 2018
    S&P BSE SENSEX **-4.82%
    S&P BSE MID CAP **-1.00%
    S&P BSE SMALL CAP**-1.58%
    BEST PERFORMER SECTORSCapital goods, power and banking
    LAGGARD SECTORSOil & gas, auto and IT
    * On Total Return Basis
    ** Source-Bloomberg

    FIIs were heavy sellers in Indian equity. October witnessed FIIs dumping stocks to the extent of USD 3.75 billion. On year to date basis, FIIs have been net sellers of USD 5.76 billion equities. However, domestic institutions have filled in the shoes for FIIs. DIIs were buyers of USD 3.5 billion in stocks. Insurers contributed USD 558 million, balance coming from mutual funds. Cumulatively, DIIs have invested USD 15.7 billion in Indian equities this year. Indian Rupee depreciated 2% against the U.S. dollar touching 74 mark.

    The U.S. economy looks on strong footing currently. Better wage growth and lesser employment are leading to tighter monetary policy in an economy which is growing strongly. U.S. has increased interest rates thrice in 2018 and may take another hike in balance of 2018. Europe is also looking to reduce its asset purchases and rise in interest rates could be around the corner. Other developed countries such as U.K. have also been raising interest rates.

    As the cost of money increases, which is set by central banks (especially in U.S.), there could be a fall in equity valuation. This is particularly relevant for emerging markets such as India. There was a flood of money coming in when interest rates were closer to zero and investors looked for arbitrage opportunity. Now with better rates in home market, that money could head out through the door.

    There has been higher geo-political uncertainty in recent terms. With sanctions on Iran imposed by U.S. starting early November, crude oil prices could flare up. Already October saw higher oil prices, which has important bearing on India’s external balances. Recent killing of a reporter critical of the Saudi kingdom could also have implications on oil trade and prices. The progress of Brexit is also ambiguous which has global ramifications.

    Indian financial markets remained on tenterhooks, continuing from problems of previous month. IL&FS default in September was followed by liquidity concerns of Non-banking financial companies (NBFCs) which were running asset-liability mismatch. With news of banks buying portfolio of NBFCs, and many able to roll over their short term paper (borrowing) nervousness of market participants eased. Many other measures have been taken including easing of system liquidity, which can put the sector back on track.

    A number of companies declared their half yearly results. One broad trend has been that growth in topline has been healthy. However, rising cost of materials including crude have eaten into profitability. Month also saw a spat between Government and RBI on a number of issues such as regulation. Rumour mills were on overdrive, before Government clarified that RBI autonomy won’t be interfered with.

    There has been a good correction in stock prices and the same has been continuing. Many stocks which looked highly valued now seem to come within reach. As desired, we were able to add few good quality stocks using the recent opportunity. 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 take advantage of recent fall in stock markets and put more money. Equities now appear less risky than they were 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.

  • November 13, 2018
    Quantum Fixed Income Team

    October was a positive month for the Indian government bonds despite the continuing negative sentiment and news from the equity and credit markets. The RBI had kept policy rates unchanged at the start of the month ignoring the popular clamor for rate hike to arrest rupee depreciation. The data releases surprised positively with CPI inflation and trade deficit coming below the market expectations. Global Crude oil prices has also corrected by more than 10% from the recent peak.

    CPI grew by only 3.77% in September 2018 over last year against market estimate of an increase of more than 4%. Broadly, inflation trajectory in the last six months has been around 40 bps lower than our earlier estimates. This was mainly because the seasonal uptick in vegetable prices did not materialize and price of pulses (lentils) continued it’s more than 1 year long drop. We expect Inflation to soften further in the next two months but rebound sharply by early 2019 to move above the 5.0% mark.

    All the indictors are suggesting that we are closer to the bottom in terms of rural incomes and agricultural prices and recent steps by government (construction activity, MSP hike etc.) have potential to raise the rural economy and prices very soon.

    Liquidity conditions tightened substantially in October as cash withdrawals from banks pick up ahead of the festive season. Additionally, the RBI intervened heavily in the forex market to contain rupee depreciation post its rate pause which also added to the liquidity deficit (The RBI sold U.S. Dollars to banks and bought Indian rupees thus resulting in lower rupee liquidity with banking system). The RBI’s foreign exchange reserves fell by more than USD 6 billion in the month.

    To address the liquidity situation, the RBI conducted longer tenure term repos and OMO (open market operation) purchase of government securities. In October, the RBI conducted OMOs worth INR 360 billion which took the total OMO in current fiscal to INR 867 billion. The RBI has announced another INR 400 billion of OMO purchases in the month of November.

    On such backdrop, bond yields softened across the curve. The 10 year government bond yield fell by over 40 bps from its peak and currently trading near 7.8%. The yield softening was more prominent in the short end of the curve as 3-5 year rates fell by more than 55 bps from its peak.

    We expect the RBI will conduct more OMOs in the coming months which may continue to support the government bonds in near term. However, given the upside risks to inflation and rising global yields, we do not see bond yields falling substantially from here. With this view we have used this rally to reduce the maturity profile in Quantum Dynamic Bond Fund portfolio and maintain a cautious stance on long term bonds.

    Although government bonds were supported by positive macro cues and favorable demand supply dynamics; corporates bonds remained under pressure. In the aftermath of IL&FS default, liquidity in corporate bonds especially of NBFCs (Non-banking Finance Companies) dried up on fears of contagion. Many of these NBFCs have large asset liability mismatches as they funded long maturity assets with short term borrowings. This also prompted investors to review the liquidity position of housing finance companies and other lenders to long term projects.

    The RBI continued to infuse liquidity in the banking system through longer tenor term repos and OMO (open market operation) purchase of government securities, but failed to revive the investor sentiment. A large chunk of NBFC commercial papers are due for maturity in the next two months; in absence of any major intervention by the Government/RBI refinancing could be challenging for few of them.

    As we have mentioned in our earlier commentaries, the current issue in NBFCs is not one of liquidity but it is an issue of sentiment. With the market worrying about large defaults by real estate developers, refinancing of NBFCs with higher share of developer loans will remain impacted. Although, the RBI is infusing liquidity in the banking system, but the transmission through NBFCs and developers remains challenged and there are genuine worries about this turning into a systemic crisis.

    In such a scenario, we would advise debt investors to stay away from credit risk and invest only in debt funds which prioritizes safety and high liquidity and manages money with prudence by being true to the investment objective of the fund.

    Quantum Liquid Fund prioritizes safety and liquidity over returns and is invested only in less than 91 day maturity instruments issued by Government and selective PSUs only.

    Quantum Dynamic Bond Fund, 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.

    We always advise investors to have a longer time frame if they invest in bond funds.

    Data Source: Bloomberg, RBI
    * Controller General of Accounts, Ministry of Finance


    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.

  • November 13, 2018
    Quantum Alternative Investments Team

    Gold breaks out of a losing streak. After six straight months of losses, gold posted a gain of +1.9% for the month. Equities slumped and trade-war concerns festered, hurting the outlook for growth. Italian budget disputes and simmering tensions in the Middle East further aided buying of gold. Early signs of risk aversion along with some short covering from speculators led to the jump in gold prices. However, no further escalation in risk aversion for now and renewed strength in the U.S. dollar capped the upside in gold. For the month, gold prices closed at $1,214.7, taking the year to date tally to -6.8%.

    U.S. stocks fell by the most since June as the effects of the trade war with China started showing up in corporate profits. European equities slid and investors remain on edge amid Italy’s budget crisis. On the back of the worst U.S. stock sell-off since February, President Donald Trump slammed the Federal Reserve as “crazy” for rate rises this year. To be fair, the Fed has been gradual and the selloff is more to do with growth concerns.

    International Monetary Fund cut its outlook for global economic growth, its first downgrade since July 2016. IMF said that the world economy is plateauing amid escalating trade tensions and stresses in emerging markets. The U.S. has a greater than 50-50 chance of tipping into a recession in the next two years, according to a model tracked by JPMorgan Chase & Co. The spike in market worries on the possibility of a recession has been the primary reason behind a rebound in gold investment demand. Slower-than-expected U.S. inflation data also aided buying of gold on bets that a cooling cost of living may spur the Federal Reserve to pull back on its pace of interest-rate hikes.

    While we talk about slowing growth, some indications of it were buried under the positive headline U.S GDP number at an annualised 3.5% QoQ and 3.0% YoY growth. The number was inflated due to rise in inventories. But of major concern was the dwindling business investment. Real private non-residential fixed investment rose by only 0.8% QoQ in 3Q18 and was up 6.4% YoY, down from 8.7% QoQ and 7.1% YoY in 2Q18.

    Outlook

    The upcoming meeting between the leaders of both the United States and China in November will be critically important and will determine whether we will see the economic growth momentum continue, or a trade war which threatens to derail economic growth in China and the United States. If the two leaders are unable to move the needle closer as an acceptable and amicable conclusion of the current trade war, the repercussions would be felt globally. We have already seen early signs of market reactions to trade escalations.

    The market’s other concern of late has been the 6th November US election, in which a wave of voter resentment towards President Trump led to massive Democrat gains in the House, though it stopped short of a Democrat win in the Senate. All told the results were more or less in line with expert forecasts, but Trump’s nudging out his Attorney General in the immediate aftermath of the election has riled up the Democrats even more for what looks to be an incredibly contentious two-year period leading up to the next Presidential election. Legislative gridlock looks to rule the day.

    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. 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


    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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