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  • November 09, 2017
    Quantum Equity Team

    In the month of October 2017, S&P BSE Sensex gained 6.27% on a total return basis. For the first ten months of 2017, the index has gained 26.30%. S&P BSE Midcap index and S&P BSE Smallcap indices performed better than S&P BSE Sensex during the month with returns of 7.47% and 9.23% respectively. Both these indices continued their strong outperformance for the calendar year of 2017, rising by 39.44% and 47.11% respectively.

    Market Performance at a Glance
     Market Returns %*
     October 2017January-October 2017
    S&P BSE SENSEX**6.2726.30
    S&P BSE MIDCAP **7.4739.44
    S&P BSE SMALL CAP**9.2347.11
    BEST PERFORMER SECTORSTelecom, Realty and Oil & gas, Healthcare and Metals 
    LAGGARD SECTORSBanking, Automobiles, Information Technology and Healthcare 
    * On Total Return Basis
    ** Source-Bloomberg

    Among sectors Telecom, Realty and Oil & gas, Healthcare and Metals were among the best performers for the previous month. Banking, Automobiles, Information Technology and Healthcare were laggard sectors for the month. Increase in effective tariffs by RJio and consolidation in the telecom sector led to sharp increase in telecom stocks. Announcement of recapitalization of PSU banks by the government led to sharp rally in public sector banks and underperformance in private banks, which dominate the banking index.

    FIIs were net buyers during the month of ~USD 296 Bn worth of equities. So far in the current calendar year, they have purchased stocks worth ~USD 5.8 Bn. Domestic institutions (DIIs) continued their aggressive buying with a net purchase of USD 1.55 Bn during the month. Mutual funds were net buyers of USD 1.39 Bn, while insurers had a net buy of USD 160 mn. INR appreciated marginally by 0.82% during the month against US dollar.

    Globally the era of cheap credit may be drawing to a close. The US Fed maintained a status quo in its policy rates but given improving GDP growth most economists predict another rate hike in December. It has already started reducing the size of the balance sheet which had bloated post the global financial crises.

    The ECB has also announced halving of its bond buying program in October from Euro 60bn a month to Euro 30bn a month. What remains elusive is inflation in the developed world which remains below target for US as well as Europe, forcing central bankers to tighten at an extremely gradual pace.  Asset classes around the world have seen a rise driven by ample liquidity and low interest rates. Surprisingly, risk aversion in the market remains fairly low as investors seems to believe the rise in cost of capital will not significantly dent asset values due to accelerating growth.

    India continues to have stable macro environment with low inflation and comfortable balance of payments primarily due to low global crude prices. However rising crude prices and sharp increase in Minimum Support Prices for the Rabi crop could potentially create inflationary conditions. The government has already blinked once to cut taxes on fuel in October to protect the consumer from sharp increases in petrol and diesel prices. Any further sharp increase in international crude oil prices could test the government’s resolve of allowing free pricing in the oil & gas sector.

    Outlook

    Our interaction with companies suggests the disruption in inventory cycles due to Demonitisation and GST has still not normalized. Due to lack of clarity on input credit, suppliers are not getting paid which has frozen the entire working capital cycle. Despite the headline GDP number showing some slowdown in the last quarter we believe the GDP has been substantially below trend since Demonitisation. Given limitations of GDP calculation where the informal sector data is extrapolated based on formal sector data, we do not believe it currently captures the extent of slowdown that we observe on the ground when we meet different companies in the value chain.

    PSU bank recapitalization announced by the government may allow these banks to aggressively write off bad loans.  However, the major problem in India has stemmed not from the lack of availability of bank finance but from lack of appetite to set up new capex. We have yet to see a single corporate who claimed lack of bank finance as a hindrance to capacity expansion. The lack of appetite stems from multiple reasons including already excess capacity, overleveraged balance sheet of large corporates, having to pay market rates for natural resources etc. These problems will take some time to sort themselves out as part of the normal economic cycle as capacity utilization improves, balance sheet of overleveraged corporates are restructured and new players with cleaner balance sheets enter the market to build the next wave of infrastructure assets.

    Given lack of earnings growth, the sharp run up has made valuations expensive. Most sell side brokers continue to forecast high earnings growth and the revise their estimates downward due to lack of earnings delivery. The concern on valuations is reflected in high cash levels held in our schemes. Despite near term concerns on valuations, we remain optimistic on Indian equities over long term. The economic cycle is close to bottoming out and may see a gradual recovery. We continue to advice caution and suggest investors planning to make lump sum allocation to stagger the same.

    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 09, 2017
    Quantum Fixed Income Team

    Indian Bond yields continued its bearish upward trend in October. The 10 year Government Bond yield rose by 20 bps to end the month at 6.86%. Bond yields have now inched up by more than 40 bps since the August monetary policy where in it had bottomed at 6.4%. A combination of hawkish RBI statements, rise in US treasury yields, general increase in price of Oil and other global commodities and worries on the fiscal deficit has led to this increase in market interest rates.

    The move up in October also started with the RBI policy being perceived more hawkish than warranted. Market participants were not expecting any rate cuts but had expected the RBI to lean towards supporting growth on the back of weak GDP numbers. The RBI commentary though was tilted more towards the risks of inflation going above the 4% headline CPI target. The RBI now forecasts CPI inflation to be at 4.2% - 4.6% by March 2018 but this includes the technical impact of increase in House Rent Allowance and the short term impact of GST. We believe the RBI should strip off the HRA increase and should then determine the headline CPI trend which pegs below the 4% target. The markets have now completely given up expectations of rate cuts and in fact the RBI minutes suggest that Dr. Patra (ED, monetary policy) has once again remarked about the RBI to be ready to hike policy rates.

    The other major reason for the bearishness has been the dilly-dallying by the government on meeting the fiscal deficit target for this fiscal year ending March 18. Lower Growth numbers were interpreted to convey that the government will announce a fiscal stimulus. Various comments by finance ministry ‘sources’ since flashed on the news wires have been around large revenue shortfall and that the government will try to not to breach the deficit target but will take the final call in December.

    The government announced a bank recapitalization plan to infuse equity capital of Rs. 2.11 trillion into public sector banks; out of which Rs. 760 billion will be in the form of direct budgetary support from government and capital rising by banks in market and the rest Rs. 1.35 trillion will be through Bank Recapitalization Bonds. The applications of these bonds are yet to be disclosed which leaves us with many possibilities about its impact on fiscal deficit and market demand-supply. Going forward market will look out for details about the structure of these bonds and guidance on government’s fiscal plans.

    On global front European central bank (ECB) acknowledged the ongoing improvement in economic activity and announced the plan to reduce its monthly asset purchases from EUR 60 billion to EUR 30 billion starting January 2018. US treasury yields have also risen meaningfully due to renewed expectation of tax reforms and improved economic data. We expect that the developed markets central banks will continue to follow the gradual tightening of monetary conditions without distorting the financial markets.

    Outlook

    The liquidity surplus with commercial banks registered a significant decline during the last month due to increased cash withdrawals ahead of festive season and lower government spending. Despite this fall, the liquidity situation still remain in surplus of close to INR 1 trillion which help keeping the short term money market rates close to repo rate. Going by the historical trend of currency in circulation we expect liquidity to move close to neutral by Q1 2018.

    At the current levels with most of the bond yield curve closer to 7%, we believe that most of the adverse news impact on markets would be negligible as markets have considered them already, levels remain attractive. On the fiscal front, we would actually worry more about the government’s commitment to next year’s (FY 19) fiscal target and if the government increases the fiscal deficit target next year then we would expect further increase in bond yields. Else, based on our expectation of muted inflation but no rate cut expectations, we expect the bond yields to range in the 6.65%- 6.90% level. We remain overweight duration in Quantum Dynamic Bond Fund at the current levels given the term spreads, the illiquidity premiums and the steepness of the yield curve.

    Data Source: Bloomberg

    Product Labeling
    Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
    Quantum Dynamic Bond Fund
    (An Open-ended Debt Scheme with Defined Credit Exposure and Dynamic Maturity Profile)
    • Regular income over short to medium term and capital appreciation

    • Investment in Debt / Money Market Instruments / Government Securities

    Investors understand that their principal will be at Moderate 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 09, 2017
    Quantum Alternative Investments Team

    World View

    The optimism on the Trump’s tax proposal and increasing likelihood of a rate hike by December led to further strengthening of the dollar. This onward pressured gold to consolidate below the $1300 an ounce mark. U.S. Senate’s passage of budget motion revived tax reform optimism as this help alleviate the obstacles for the Republican majority passing a tax cut package without the support of their Democratic counterparts. Gold faced sustained headwinds from another round of record highs in U.S. equities, as well as markets now placing a more than 80% probability of a December rate hike by the Fed. Gold prices ended the month with a marginal decline of - 0.7% for the month at $1,271 an ounce.

    The economic data is far from showcasing a consistent trend and has been volatile at best. Good numbers keep alternating with not so encouraging ones and vice versa. We did see a string of good numbers last month bolstering Fed’s case for raising borrowing costs. While number of workers on U.S. payrolls declined last month, jobless rate fell to a 16-year-low and wage gains accelerated. The fact that there was no real decline in numbers in light of the two hurricanes that ravaged Florida and Texas recently made these numbers stand out. However, it will be important to note that hourly earnings rose sharply, probably because the people who temporarily dropped off payrolls are lower paid than average. In terms of other data, industrial production and capacity utilization numbers came in strong, meeting expectations. Markets took this as a sign that the Fed is still going to remain firm on raising rates by end of the year.

    Republicans unveiled long-delayed legislation to deliver deep tax cuts that President Donald Trump has promised. The need of the hour was to come up with tax cuts within the confines of only increasing the deficit by US$1.5tn over the next ten years. This is the requirement as laid down by the FY2018 Budget resolution. Obvious ways to generate the revenues to pay for the tax cuts, just as ending the deductions for state and local income taxes, are difficult to implement in practice because Republican Congressmen from high tax states like New York will not want to vote for them. Tax reform is far from being a done deal.The bill contains several specifics that will prove sticking points, which increase the difficulty of finding the votes to support the plan in both the House and the Senate.

    Outlook

    The much awaited Trump tax plan in its current form would almost certainly give disproportionate benefits to wealthy Americans, who tend to benefit from corporate tax cuts more than non-wealthy Americans and who could likely exploit the pass-through rate by setting up dummy corporations. The tax plan being considered in Congress would inflate the nation’s budget deficit and expand the debt. But the bill will almost certainly not remain in its current form. As written, it is almost guaranteed to increase the budget deficit by trillions over 10 years, and quite possibly keep increasing the deficit after 10 years. But the bill will almost certainly not remain in its current form. And so long as the legislation still increases the long-run deficit, it’s a nonstarter in the Senate. There still lies a small probability to get a landmark tax reform bill given the obvious need for the Republicans in Congress to demonstrate at next year’s mid-term elections that they have achieved something. However, the current tax changes being proposed by the President will morph over time and will be significantly watered down if it is ever to become law. Therefore, since the final plan will be significantly diluted from the proposed form, its effect on the economy and for equity prices will be extremely attenuated. This means the current ebullience on Wall Street is about as far offside as possible.

    The most powerful job in the world will now be manned by Jerome Powell, another dove in the long line of Fed bubble builders. Powell, in fact, will be the first investment banker to take the reins at the Fed. Although it is widely expected that Powell’s leadership will be in line with the current monetary policy and thinking of Janet Yellen’s Federal Reserve, he differs in his view of existing regulations and is much more in line with the president than that of the outgoing Fed chairperson. Powell is considered to be a dove and so he’s likely to keep interest rates low-for-longer.

    The Fed continues to remain data dependent and there is no certainty that U.S. economic growth can sustain that level of tightening. Fed tightening also represents the biggest risk to the current stretched valuations on Wall Street. As the Fed tightens, the more likely it will trigger a renewed deflationary reality check. This could lead, again, to some form of unconventional monetary policy. It is the Feds and other central banks inability to exit from unconventional monetary policies that would serve as the real trigger for gold prices to break out of the current consolidation.

    The world is in great disequilibrium, both with respect to the global economy and geopolitics as well. The fallout of the geopolitics globally seems to now cap the downsides in gold. Given the macroeconomic picture, gold will be a useful portfolio diversification tool and thereby helping you to reduce overall portfolio risk.

    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.

  • August 14, 2017

    Transparency at all Times

    First and foremost Happy Independence Day to all our investors.

    This year marks 70 years of India being a free nation as we celebrate our 71st Independence Day. Much has changed from the time Pandit Nehru took the reins of an independent India. An economy, for which a 4% growth was considered great, has now grown leaps and bounds. India has evolved from a predominantly agriculture driven economy to a manufacturing and services driven economy. Progress has been made, though not as rapidly as we would like, but we hope that the country will move in the right direction in the long term.

    In the world of Mutual Funds, a lot has changed for good and many new norms have been introduced by the market regulator SEBI to make the mutual funds a suitable investment avenue for investors. With an aim to bring in greater transparency in dealings of mutual funds, last year SEBI asked AMCs to disclose the absolute commission paid to the distributors as against the investments garnered from subscribers in each MF scheme as a part of Consolidated Account Statement. This was one of the many positive reforms undertaken by the Regulator. While we hope SEBI continues setting rules that benefit investors, there is one place we are looking forward to the market regulator focusing on and that is using Mark to Market (MTM) for NAV of Liquid funds. Why is this important? Let’s go back in year 2013. Liquid funds had felt the jolt in the month of July, 2013. This happened when the RBI, on 15th and 23rd July 2013, decided to introduce liquidity tightening measures to address the issue of currency volatility and depreciation. As a result of these liquidity tightening measures, the liquid funds saw a fall in their NAV, as short term interest rates rose sharply.

    The NAV of the Quantum Liquid Fund (QLF) plunged on 16th July, 2013 then regained some ground as market stabilized and, due to volatile markets, fell down again.

    Given that the QLF NAV is completely MTM (Marked to Market), as compared to its peers the impact of these market movements are felt daily and thus the movement in the NAV will remain exaggerated till the markets settle down again. As investments are MTM in QLF, the impact of a large redemption would be equally felt by all investors as against its peers who follow amortization process where redemptions impacts the investors who remain invested in the fund.

    Since the Quantum Liquid Fund invests in money market and debt instruments of less than 91 days maturity period, the fund relies largely on the accrued interest income from its securities to derive value rather than from capital gains. Following the process of amortization, as is the normal method of evaluation of the assets of a Liquid Fund when valued on a daily basis does not tell the investor whether the reported NAV is actually the current transactable NAV. Which means that if the fund is to be liquidated tomorrow, whether the assets would fetch the same valuation as noted in NAV cannot be affirmed as market values of the assets might be higher or lower than the current amortized value depending on the current market interest rates. Since, June 2012 Quantum Liquid Fund was able to move towards fair value method of MTM, owing to the availability of market traded prices in a transparent manner. All this, only to ensure, fair treatment to all investors seeking to purchase or redeem the units of the scheme at all points of time.

    Transparency to our investors is the cornerstone of the Quantum philosophy; when the NAV of the Liquid Fund fell, we immediately informed our investors of the same and warned them that such falls could happen in future. Further, when this happened the second time we once again shared a communication explaining the fall in our Quantum Liquid Fund NAV.

    Therefore at Quantum Mutual Fund we believe in the principles of honesty and we need to follow a disciplined investment process, adhere transparency and offer low cost products that helps you meet your financial goals.

    Product Labeling
    Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
    Quantum Liquid Fund
    (An Open- ended Liquid Scheme)
    • Income over the short term

    • Investments in debt / money market instruments

    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. 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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