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  • April 09, 2018
    Quantum Equity Team

    Equity markets took a tumble in the month of March. S&P BSE Sensex fell 3.46% during the month on total return basis. Mid cap and small cap indices performed worse than the broader benchmark. S&P BSE MidCap index fell 3.6% whereas S&P BSE SmallCap index was down 6.23%. From the start of 2018, both indices are down 10% plus. This compares to fall of 3.01% of S&P BSE Sensex in the first 3 months of 2018.

    Consumer durables was the only sector, which was positive during the month. FMCG, automobiles and capital goods were among the sectors which performed better than benchmark during the month. Metals lost the most during the month owing to US announcing tariff of 25% on steel imports. Real estate and Telecom were other sectors, which had notable falls during the month.

    FIIs were net buyers to the tune of USD 2.02 billion in the month of March. So far in 2018, they have bought USD 2.12 billion worth of stocks. DIIs were net buyers of USD 1 billion, taking their tally to USD 3.85 billion in 2018. Mutual funds continue to dominate the DII purchase. The Rupee appreciated during the month by 1.53% against US dollar.

    Market Performance at a Glance
     Market Returns %*
     March 2018
    S&P BSE SENSEX**-3.46%
    S&P BSE MIDCAP **-3.06%
    S&P BSE SMALL CAP**-6.23%
    BEST PERFORMER SECTORSConsumer durables
    LAGGARD SECTORSMetal, Real Estate, Telecom
    * On Total Return Basis
    ** Source-Bloomberg

    The key event for global financial markets during the month was 0.25% increase in interest rates by the US Central Bank. There is a chance of 2 more rate hikes in 2018 as the U.S. economy has been doing well and unemployment is at a historic low. Taking a cue from the US, other central banks such as EU and Japan could also discontinue easy monetary policy in times to come. This could put pressure on equity prices in emerging markets including India. FIIs may stop buying assets in risky markets and rather earn return in home markets, at least temporarily.

    March also saw worries on global trade. U.S. announced higher tariff on Chinese goods which could impact Chinese exports to the tune of USD 60 billion. This has led to retaliation by China with tariffs on many U.S. exports to the country specially agriculture. Russia was also in the news as many European countries and U.S. suspended its envoys over poisoning of an ex-spy using chemical weapons.

    Following the USD 2 billion fraud by a jewellery account last month in PNB, another private sector bank dominated news in March on domestic side. There were media reports of ICICI Bank’s MD being party to sanctioning loan to a company whose promoter had business dealings with the MD’s spouse. There are allegations that loan was given in lieu of investments made by the promoter in the company owned by MD’s spouse. So far, concerned parties have denied the allegations and bank’s Board has stood solidly behind the MD.

    The macroeconomic scenario has deteriorated for India in the recent past. Inflation has increased to reach ~5% level. This is likely to keep interest rates at a higher level. The price of Crude Oil has also risen and current account deficit is likely to worsen compared to past. On the other hand, corporate India has been showing better profitability recently which was missing earlier. This, over time, is likely to reflect in stock performance of listed companies.

    Barring a few sectors, valuations of stocks are at high levels. While share prices have run up, earning of companies are picking up now only after 4 year hiatus. High level of liquidity globally has driven up stock prices. Markets have fallen recently; any further correction could make stocks attractive. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many countries. Investors can thus expect decent return from equities over a long period in future. Valuations, however, leave moderate upside in the near term. Investors at this point should continue SIPs but refrain from taking large fresh position in equities.

    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.

  • April 09, 2018
    Quantum Fixed Income Team

    A host of factors moved the fixed income market in the last month. But the biggest highlight was the government’s borrowing program. In a surprise move, the government reduced the gross market borrowing for the fiscal year 2018-19 by Rs. 500 bn. Out of which Rs. 250 bn will be funded through additional receipts from Small Saving Schemes and Rs. 250 bn through cuts in the buyback of existing government securities. The government plans to borrow Rs. 2.88 tn through dated government securities during April to September 2018 which is 51.9% of the revised FY19 Gross borrowing. This is considerably lower than usual proportion as, in the past, the government had been raising 60-65% of the total gross borrowing in the first half to avoid crowding out seasonal pick-ups in credit off-take in the second half of fiscal.

    Apart from the size, the government also altered the maturity profile and nature of its borrowing. The borrowing calendar indicates a larger proportion of shorter dated securities including a new category of 1-4 year maturity papers. They also plan to issue higher proportion of Floating Rate and Inflation Indexed Bonds to the tune of 10% of total issuances.

    The bond market, which was in “trauma” due to demand supply mis-match, cheered the lower borrowing numbers. The yield on 10 year benchmark bond fell by whopping 30 basis points on the following day and closed the month of March at 7.32% as against close of 7.73% in the previous month.

    On the global front, the market narrative shifted from the synchronized economic recovery to trade war and protectionism. Despite a 25 bps rate hike and projection of higher neutral rate by the US Federal Reserve, the US treasury yields declined by over 12bps during the month to the low of 2.74% which was last seen in January 2018. The economic data in developed markets (DM) continue to show strong growth outlook. This would induce confidence in DM central banks to reverse the easy money policy and in turn lead to higher interest rates. However, a full-fledged trade war can dampen the global growth prospects and can also delay the policy normalization process in the developed economies.

    Despite the broader uptrend in global yields and elevated commodity prices, the Indian Rupee remains fairly stable as compared to the US Dollar. The lower volatility in INR has been supporting FPI investments in Indian bonds in this bearish market. The FPI investment limits remained fully utilized in both the government and corporate bond segments and are due for revision. Given the attractive real rates and comfortable reserves and external balances, FPIs may continue to favor Indian bonds.

    In the first bi-monthly policy for FY19, the RBI’s monetary policy committee (MPC) kept the Repo rate unchanged at 6% by 5-1 vote (one member voted for rate hike) and lowered its inflation projections for FY19. The RBI now expects the headline CPI inflation to be 4.7%-5.1% in the H1 (Apr-Sep 2018; lower by 0.5%) and 4.4% in H2 (Oct 2018-Mar 2019; lower by 0.1%). This could be driven by the lower inflation readings of the last two months.

    By lowering the inflation estimates, the RBI has signaled a shift in its monetary policy outlook for the rest of the year. In the last 4 months, the RBI was seen to be hawkish and worried on the inflation trajectory. But now it seems that they are not unduly worried about the oil prices and MSP (minimum support price for farm produce) increases. Market expectations of any rate hikes will be dialed back post this policy and hence bond yields will remain supported on the back of already announced reduction in bond supply.

    Still we would remain cautious against too much optimism on the supposed RBI dovishness and will closely monitor the incoming data to project interest rate path. We have seen this MPC change its guidance/commentary/analysis (both ways) much too often in the past for market comfort.

    After the recent decline in yields, bond valuations are more balanced now though still pricing some rate hikes. In view of the pressures building on inflation from higher commodity prices (especially crude oil), potential MSP (Minimum Support Prices) increases and higher government spending on rural sector, we maintain a cautious stance over rates and do not expect bond yields to soften significantly from here.

    Going ahead, the markets will closely watch the extent of MSP increases for the Kharif crops which will be available by May 2018. By that time, we would also get a clearer assessment of monsoons, which given the low water reservoir levels, assumes significance for food production and prices. The RBI policy for June 2018 thus holds major significance with implications on future rate trajectory.

    We continue to maintain our neutral stance on rates over the medium term. However, we keep looking for signs of mispricing in market and position to exploit the opportunity tactically. We advise investors to have a longer time frame if they invest in bond funds and should also consider the possibility of capital losses in the short term. Bond Mutual Funds invest in fixed income securities and unlike fixed deposits do not provide a fixed return.

    Data Source: Bloomberg, RBI


    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.

  • April 09, 2018
    Quantum Alternative Investments Team

    The US Federal Reserve’s monetary policy event is shaping up into a peculiar gold trading pattern especially when markets gear up for a rate hike. Gold is pressured downward going into the FOMC (Federal Open Market Committee – the US Fed’s version of RBI’s MPC) meeting and rises following a rate hike. And, it so happened this time too. The rebound in gold prices was led by the fact that the Fed indicated it would stay the course presented a much more dovish tone then many market participants feared. Adding to this was the global turmoil owing to the trade war between U.S and China that further helped gold to recover. All in all, gold managed a close at USD $1,325 an ounce, a marginal increase of +0.5% for the month.

    Although the 25-basis point rate hike was widely anticipated, and for the most part factored into existing market sentiment, market participants concerns about four rate hikes this year were alleviated. The forecast for two more hikes this year (instead of three) disappointed market participants who turned their backs on the U.S. dollar, triggering a sharp selloff. In his first press conference since becoming chairman of the Federal Reserve, Jerome Powell said that policy makers “don’t have the ability to see that far into the future” and advised investors against reading too far into the central banks’ 2020 projections for interest rates.

    Global turmoil is once again proving good for gold. U.S. President Donald Trump’s insistence that he would not back down to threats of a trade war over proposed metal tariffs fueled anxiety across global markets. In the face of anger from trade partners in China, Canada and Europe, Trump responded in a tweet that “trade wars are good, and easy to win.” The specter of a heated trade war between the U.S. and China has the marketplace spooked. Investors are “buying back hedges,” incase things deteriorated further on this front.

    Outlook

    The trade war dispute between the two superpowers is far from over. China will work toward resolving issues via dialogue and negotiations, but is also prepared for responses. It is hard to imagine that either of the two superpowers will back down immediately which suggests that this dispute will continue. Should there be a “deep trade war,” with ramifications for global growth, industrial commodities such as base metals, energy will be negatively affected, but that scenario would benefit gold.

    The new chief at the Fed stuck with Fed’s original forecast of three rate hikes in 2018 whereas markets started imagining the possibility of four. This made the Fed look more dovish relatively. The optimism was due to a better spell of economic numbers off late. The U.S. economy added more jobs than forecast, the most since mid-2016. U.S factory output rebounded and consumer sentiment jumped to 14 year high after tax cuts. But absence of persistent inflation seems to be a lingering concern. The CPI moderated from its breakneck pace last month and U.S. wage growth cooled. This could well be the reason for lack of aggression at the Fed.

    The Federal Reserve is on course to shrink its balance sheet by US$420bn or 9.4% this year and by US$600bn next year as a result of the policy known as quantitative tightening. Meanwhile, G7 balance sheets are still expanding in aggregate; though the rate of expansion will slow sharply this year, most particularly in the second half, based on the “tapering” schedule outlined by the ECB.

    The aggregate size of the balance sheets of the Fed, the Bank of Japan, the ECB and the Bank of England increased by 17% last year to US$15.2tn at the end of 2017. Based on the stated central bank policies, the aggregate balance sheet is projected to rise by 6.8% to US$16.3tn by the end of this year. The impact of lesser money will be over time felt by equity markets and the euphoria on tax cut optimism, liquidity and higher asset prices will likely come to an end this year. The recent correction in risk assets seems to be early indication of just that.

    For now, the Fed seems to be keen to use the euphoria in order to push the normalisation of monetary policy. We don’t expect real rates to move up too much. The emergence of trade wars and supply side reforms in China will pave way for some return of inflation. Absence of income growth with the ongoing slide in savings rate will put further pressure on the real economy. Fed’s balance sheet normalization would push rates higher and therefore impact Feds resolve for a rate hike trajectory they envision today as high rates brings in focus the prevailing high debt levels. Absent support from global turmoil due to trade wars or geopolitical concerns, the Fed’s attempt to get ahead of its QE unwind may provide investors with a buying opportunity in gold before adversely impacting market and economy. While the upside may take some time, downside seems limited because the negative fundamentals for the market are for the most part already factored into prices.

    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


    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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