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  • March 12, 2019
    Quantum Equity Team

    Month of February turned out to be negative for Indian equity market. S&P BSE Sensex fell 0.98% during the month (on total return basis). Small and mid-cap stocks performed worse than the broader benchmark. BSE Midcap index fell 1.58% during the month whereas BSE Smallcap index had decline of 1.62%. Taking into account the gain in January month, BSE Sensex has fallen 0.45% in 2019 so far.

    Oil & gas, auto and real estate were among the sectors which did well during the month. Reduction of GST rates for under-construction properties buoyed the real estate stocks. Banking, FMCG and power sector lagged the returns of benchmark.

    Market Performance at a Glance
     Market Returns %*
     February 2019
    S&P BSE SENSEX **-0.98%
    S&P BSE MID CAP **-1.58%
    S&P BSE SMALL CAP**-1.62%
    BEST PERFORMER SECTORSOil & Gas, Auto and Real Estate
    LAGGARD SECTORSBanking, FMCG and Power Sector
    * On Total Return Basis
    ** Source-Bloomberg

    FIIs were buyers during the month. They bought stocks worth USD 2.37 Billion taking their tally to USD 2.29 Billion for 2 months of 2019. Domestic institutions (DIIs) turned net sellers with outflow of USD 86 Million during the month. Within DII, mutual funds were buyers to the extent of USD 1.03 Billion. So far they have put USD 220 Million to work in 2019. Indian rupee appreciated 0.48% during the month. This was despite tensions escalating at political border and rumors of war.

    Risk related to interest rate increase by US Fed has receded in the near term. However, any positive development on US China trade deal could lead to optimism and firming of many commodity prices. This in turn could fuel inflation and interest rate hikes could be back on table. Recent news suggest encouraging developments on US China trade deal, which could lead to majority of Chinese products exempt from US import tariffs.

    Any increase in US interest rates as well as tightening of balance sheet of US central bank is likely to have negative ramifications for India equities. Low interest rates in developed markets have inflated prices of all asset classes. As rates tighten and foreign money leaves emerging markets, there could be a decline in equities, at least temporarily. Uncertainty around brexit deal is another near term uncertainty for global financial markets.

    RBI in February cut interest rates by 0.25% in the first policy meet under new its Governor. It also changed its stance from ‘calibrated tightening’ to neutral. CPI inflation continues to hover around 2% and recent data points to slowdown in GDP growth. This could lead to further lowering of interest rates.

    Indian listed companies completed their earning season by last ones announcing 3Q results for fiscal 2019. Overall results continue to lag expectations, and analysts continue to cut their expectations of earning growth for the year. Even after 4 years, earnings growth continues to elude investors. There has been a slowdown since September 2018 given liquidity problem with NBFCs. Many consumer goods saw weakening of demand. Private sector is still reluctant to invest in new capacities, and waiting for new Gov. before deciding its course.

    There has been a good correction in stock prices in 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 digit. 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. We are of the view that investors can 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.

  • March 12, 2019
    Quantum Fixed Income Team

    The movements in the bond markets played out in two parts in February, long maturity bond yields continued their bearish upward trend while on the other hand yields on shorter maturity bonds declined sharply during the month. The (new) 10 year benchmark government bond yield rose by 13 basis points (bps) in the month to end at 7.41% as against 7.28% in the previous month. On the same time yield on the liquid 2023 maturity government bond fell by around 18bps from 7.18% to 7.0%.

    Corporate bonds also witnessed similar trend. Yields on the 10 year AAA PSU bonds rose from 8.40% to 8.55% in the month. While yield on the 3 year PSU bonds fell from 8.0% to near 7.95%.

    Short term bonds rallied on the 25 bps rate cut and dovish stance of the RBI along with the continued aggressive purchases by the RBI under open market operations. Whereas long maturity bonds remained under pressure due to rising crude oil prices and excessive supply in the longer maturity profile.

    In the Union Budget, the government announced an increase in the fiscal deficit for this year (March 2019) and for March (2020). The government has announced to borrow an additional Rs. 360 billion in March through dated securities to meet the fiscal gap target which has been hurt by lower GST revenues as also by increased expenditure including in the newly announced farm income support.

    Moreover, the bonds issuances from state governments and public sector undertakings (PSUs) have also increased substantially in the January to March quarter. Constrained by its own fiscal targets, the government has used the PSUs to increase capital expenditure which has significantly added to the overall borrowing supply pressure in the longer tenor of the bond markets. This trend is likely to continue in Fiscal Year 2020 as well with the central government itself slated to borrow INR 7 trillion; an increase of INR 1trillion from FY 19

    On the positive side for the bond markets, the CPI inflation dropped to a 19 month low of 2.05% in January vs 2.11% (revised down from 2.19%) in the previous month. This fall was mainly due to sequential decline in food prices which kept the food inflation (weight 45.9%) in negative territory (-1.22% yoy in January) for the fourth month in a row. Other components of the retail inflation also moderated in the month as Fuel & light index grew by mere 2.2% and the Core inflation moderated to 5.4% against the market expectation of 5.7%.

    The CPI inflation has considerably surprised the markets and the policy makers in the last three quarters. This CPI reading was also around 50 bps lower than the street expectation. It has now opened up space for further reduction in the repo rate in the upcoming monetary policy in April.

    The GDP growth also dipped to a 5 quarter low in the Q3 FY19 (Sep’18 – Dec’18) growing only by 6.6% yoy as compared to 7.7% yoy in the same period of the last fiscal year. The slowdown was primarily on account of distress in the agriculture sector, elevated crude oil prices and credit crunch in the corporate bond market. High frequency activity data indicates that private consumption and investment activity are slowing down as well which will keep the GDP growth under pressure in the coming quarters.

    In the February meeting of the RBI’s Monetary Policy Committee (MPC), members have adopted a dovish stance on policy rates as they pegged the CPI inflation below 4% target for the entire year and highlighted risk of slowdown in the GDP growth. The new RBI governor has also hinted towards a new role of monetary policy to support the economic growth as inflationary pressures remain well under control.

    The recent readings of Inflation and the GDP have strengthened the case for monetary easing. We expect the CPI inflation to average around 3.8% in FY2020. Thus there is a possibility of further 50-75 bps reduction in the Repo Rate in next 2-3 quarters if inflation follows the current trajectory. We expect the RBI will cut the repo rate by 25-50 bps in the April policy itself and then wait for the incoming data on inflation and growth.

    Based on our view of monetary easing and on improved valuations after the sharp selloff in the last two months, we have turned constructive on the long maturity bonds. However, we are still concerned about excessive supply of bonds and election uncertainties in the near term and are also monitoring the crude oil prices very closely.

    We have used the recent sell off in market to accumulate some medium to long maturity good quality State government loans (SDL) and top rated PSU bonds in the QDBF portfolio. The spread on corporate bonds and SDLs over the respective central government bonds have widened to historical high levels. We believe at current spreads these offer reasonable margin of safety in terms of valuations.

    We still maintain our long term view that the policy repo rate will not sustain for long below the 6% mark and any dip below this level would be temporary unless inflation dynamics changes structurally. Hence we do not expect a sustained rally in the bond market and intend to exploit the short term market attractiveness tactically. We continue to believe that the credit crisis that begun in the Indian bond markets after the IL&FS default in September is also not over yet and the widening of spreads between corporate and sovereign yields is thus 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.

    The short end money market rates moved up in its usual run up to the fiscal year end. The yields on 3 months PSU papers grinded higher from 7.1% to 7.3% during the month despite the 25bps reduction/cut in the policy repo rate. Thus the spread between the 3m PSU yield and the Repo rate (cut from 6.5% to 6.25%) has widened from 60 bps to over 100 bps now. This is also reflective of the tightness in the liquidity conditions in the banking system. The system liquidity remained in high deficit for most part of the month primarily due to higher than usual cash withdrawals from the banks.
    We expect the liquidity situation to ease in April and thus find the current yields on the 3month assets extremely attractive.

    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.

  • March 12, 2019
    Quantum Alternative Investments Team

    Optimism on the US – China trade deal was reason enough to halt the seasonal uptick in gold. The positive effect of nearing a deal has translated to bullishness in risk assets, a stronger dollar and naturally a pullback in gold. However, this does not undo the favorable dynamics for gold relating to the dovishness at the Fed, but seemingly market participants are getting ahead of themselves. After the more flexible stances flagged earlier, Fed Chairman Jerome Powell appears to be moderating the market perception. Better than expected U.S GDP and rebound in Chinese manufacturing lifted sentiments on global growth and in-turn further pressured gold prices. All in all, gold prices ended the month at $1313.3 an ounce, a decline of -0.6%. This first monthly loss after rising for four straight months reduces the year to date increase to +2.4%.

    China is willing to consider enough compromises to get the deal done. They promised to “substantially” expand purchases of U.S. goods to reach a breakthrough. Trump has favorably commented on the deals progress. The decision to extend the 1st March deadline for the further threatened rise in tariffs and talk of a meeting between Trump and Xi at Trump’s estate in Florida in late March were enough confirmations for the market of a trade deal coming. This has led to a “risk-on” in global equity markets. This rally could have further legs if the deal leads to removal of existing tariffs and may lead to further sideways action in gold.

    US economic data has been a mixed bag. The jobs market still shows signs of economic resilience but other areas like manufacturing, sales and housing raise questions on the robustness. Hiring increased in January by 304,000, the most in almost a year, ISM index unexpectedly rose to 56.6 propelled higher by new orders, and better than expected GDP growth of 2.6% added to the positive fervor. On the other hand, U.S. retail sales fell the most in nine years, U.S. manufacturing production unexpectedly contracted in January by most in eight months and declining trend in housing starts point towards slowing growth momentum. Weak industrial production numbers and soft inflation expectations reinforce concern exposed by shocking retail sales data, that the economy could be facing headwinds earlier than many expect.

    Minutes from the latest Fed meeting weren’t quite as dovish as the signals seemingly delivered by Fed policy makers in January. The central bank is in no rush to make a judgment about changes in policy. The fact that the US central bank will pause for a few meetings, does not necessarily mean that the Fed finished tightening of its monetary policy. After all, several FOMC members still believe that the further interest rate hike is the best course of action if the economy evolves as expected.

    Outlook
    Although the Fed has sounded dovish over the last two months, they have continued with unwinding of the balance sheet. This year the Fed has removed about $63 billion from the economy, much lower than their planned $50 billion per month. It’s important to note that Fed still in part is continuing to normalize and remove liquidity support. However, general expectations suggest that Fed has completely abandoned its tightening policy. As the Fed has suggested that its balance sheet unwinding is no longer on auto pilot and will soon withdraw it. If risk assets continue to rally on easing and trade deal expectations, it can result in equity markets turning supportive of a rate hike. Despite the dovishness, investors cannot rule out further rate hikes in 2019 and the Fed could deliver one as early as June. Also, the end of the balance-sheet runoff will give the Fed more flexibility in terms of raising rates. The 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 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 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.

    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.

    After the Fed’s January pivot, the ECB appears to be on the verge of throwing in the towel on any foreseeable exit from negative rates. Subpar economic growth and strains in the Italian banking sector are part of the reason some ECB policy makers are discussing options if the regional slowdown deepens. Even BOJ Governor Kuroda has joined in to suggest additional easing is possible. 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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