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  • September 12, 2017
    Quantum Equity Team

    In the month of August 2017, S&P BSE Sensex lost 2.32% on a total return basis. Despite the fall, the index has gained 20.47% in first 8 months of 2017. S&P BSE Midcap index and S&P BSE Smallcap index performed better than S&P BSE Sensex during the month with returns of 1.14% and -0.49% respectively. Both these indices have delivered stellar returns so far in 2017 of 30.48% and 33.49% respectively. Among sectors, consumer durables, oil & gas and metals performed better than the equity indices for the month. Healthcare, IT and banking were among the sectors where returns were sub-par during the month. Reliance Industries stock declined 1.28% during the month, performing better than S&P BSE Sensex. 

    Market Performance at a Glance
     
    Market Returns %*
     August 2017January-August 2017
    S&P BSE SENSEX**-2.3220.47
    S&P BSE MIDCAP **11.430.48
    S&P BSE SMALL CAP-0.4933.49
    BEST PERFORMER SECTORSConsumer Durables, Oil & Gas and Metals 
    LAGGARD SECTORSHealthcare, IT and Banking 
    * On Total Return Basis
    ** Source-Bloomberg

    FIIs in the month of August sold stocks worth USD 1.73 billion. In the 8 months of 2017, they have put USD 7.16 billion to work in India. Domestic institutions (DIIs) countered the selling of FIIs with purchase of USD 2.5 billion during the month. Of this, majority was contributed by insurers with buying of USD 2.7 billion. DIIs have invested USD 6.5 billion in the calendar year so far. The Indian Rupee appreciated by 0.44% during the month against the U.S. dollar, breaching 64 level.

    Globally, there is excessive liquidity which has kept prices of financial assets on a high. Recent meeting of central bankers indicates that this is likely to continue at least for some time in the foreseeable future. Jackson Hole conference suggests that European Central Bank is likely to keep interest rates low. U.S., on the other hand, may hike interest rates. However, it doesn’t yet plan to unwind the USD 4.5 trillion liquidity which was created to fight the global financial crisis 9 years ago.

    Geo-political issues have also dominated investor sentiments in recent times. North Korea fired ballistic missile over Japan and also followed that up with a hydrogen bomb test. At India’s own background, there was a deadlock with China over a piece of land in Bhutan. There is a risk of tensions firing up that can make the financial markets nervous. Any rise in global interest rates is also likely to spook emerging markets such as India as flows can shift to developed markets.

    India’s broad macroeconomic indicators look stable. Inflation at 2.36% remains low and interest rates are at a subdued level. Fiscal deficit and current account deficit remain under control. Crude oil prices remain under USD 55 a barrel, which provides a comfort to the economy from major external shocks. Exchange rate remains stable while country sits on all time high foreign currency reserves.

    Among the events for the past month, RBI Annual Report gave away the data on old currency notes deposited after demonetization. Almost 99% of the old Rs. 500/1,000 notes found their way to banks. This debunks the expectation that lots of money (Rs. 5 trillion as per some initial estimates) was black and would be destroyed. People found ingenious ways to deposit almost all of Rs. 15.5 trillion in currency that became invalid on 8th November 2016. Among other damages, RBI also reduced its dividend to Government as it had expenses on printing and transporting notes. Dividend reduced by more than half from INR 658.8 billion to 306.6 billion.

    Data also came from Government for first set of collections under new GST regime. Rs 922.8 billion was collected for the first month, slightly higher than what was expected. It will be known in sometime if the revenue collection in the form of indirect taxes are significantly higher under the new tax regime. Higher amount can lead to either more public spending or better control on fiscal deficit, thus benefiting the economy.  

    GDP growth slowed down to 5.7% in the first quarter of FY18. This has been driven by near term issues such as GST and demonetization. GST led to destocking by stockists and thus reduced industrial output.

    August month also witnessed major upheavals at Infosys, a prominent index stock. CEO of the Company resigned and there were allegations and counter-allegations on role of Board and founders of Company. Finally the issue was settled after Mr. Nilekani stepped in as Chairman of Board. This also followed resignation by few other Board members. We think there was a clash of culture within the company after new management came. Previous Board of the Company also didn’t fully live up to its responsibility. 

    One of the major constituents of GDP is investment spending. Investment cycle has remained subdued for many years now. Excess capacity creations till 2008, leveraged balance sheet of corporates are some of the reasons behind investment cycle remaining weak. We still see no rebound in the capex cycle, especially in the private sector. Investment pick up is also required to create jobs, and that in turn drives consumption leading to a virtuous cycle.    

    Outlook

    We remain positive on Indian equities over long term. High GDP growth relative to rest of the world, increasing consumption and likely investment in infrastructure are key drivers for equity returns. We are cautious on equities in the near term however. Markets have been running up which is not supported by earnings growth. Most sell-side brokers continue to revise their earning estimates downward. This happens despite hopes since 2014 that there will be earning recovery. Upside in Indian equities is limited in the near term. The same is reflected in high cash levels held in our schemes. We suggest that investors don’t make aggressive allocation to equities at this point of time. However, they can invest moderate sums of money.

    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.

  • September 12, 2017
    Quantum Fixed Income Team

    Macro and Market Commentary

    The first month of GST roll out (July) seems to have gone well for the government. The Tax collected data released in August was as per government expectation and as compliance and adoption picks up, one would assume that tax inflows should increase. This bodes well for the fiscal trajectory as the government has already reached 90% of its overall fiscal deficit target in 4 months. The government has front-ended a lot of its expenditure to support the economy without which the Q1 FY 18 GDP growth (reported at 5.6%) would have dipped below even the 5% mark. The economic data is reflecting the continued weakness seen since demonetization and on further GST rollout related uncertainties.

    The RBI, in its Annual Report, mentioned that close to 99% of the currency in circulation prior to demonetization returned back to the RBI, confirming the view that it would have no economic benefits. Now apart from the apparent slowdown it has caused, the RBI also cut its dividend to the government by half sighting increase in demonetization related expenses. The credit the Modi Government can rightly take on demonetization is the political benefit they got out of it and on how well they have managed the narrative on its various accrued benefits.

    The RBI did mention about the fall in economic activity and given that CPI inflation continues to remain benign (despite some normalization that we will see in the coming months), we would expect them to weigh more towards supporting the economy over inflation. Real Interest rates continue to remain higher than the 1.5%-2.0% range that the RBI targets and thus the RBI does have scope to cut interest rates by another 25 bps. We still expect the RBI to remain on hold but we won’t be entirely surprised if they indeed cut the Repo rate below 6%.

    Outlook

    The benchmark 10 year government bond yield which fell below 6.45% post the RBI rate cut moved up during the month to trade at 6.55% before ending the month at 6.52%.

    We had indicated in our July commentary that with government bond yields around the 6.4% level we would lower our duration and wait for yields to rise by 10-20 bps to build in some duration. We did add in some duration in August as the curve steepened (long term yields increased more than short term yields) and 10 year yields broke above 6.5%, but we await increase in yields to increase the maturity profile further.

    In the short term, we still see the bond markets in a very tight range in the absence of any fresh cues either side. We will use the steepness in the curve and the illiquidity spreads available on off-the-run papers to build in higher portfolio yield and carry. Our overall bias remains of a neutral duration positioning given our view that the best of the bond market gains are behind us, but we will keep looking for signs which suggest to us that the market is likely pricing in probability of further rate cuts.

    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. 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.

  • September 12, 2017
    Quantum Alternative Investments Team

    A combination of factors helped gold move past the psychological barrier of $1300 an ounce. A weakening dollar, stalemate over Debt ceiling in the U.S, faltering Trump agenda, declining probability of rate hikes by the Federal Reserve and above all escalating Geopolitical worries pushed gold higher surpassing the resistance from which it got knocked off several times over the past few months. Gold prices managed a close at $1321.40 an ounce, an increase of 4.09% for the month taking the year to date increase to 14.68%. (in USD as on 31/08/2017)

    For the first time, people are now questioning if Trump can get anything done on the policy front. Comments made last week by the president about the violent protests in Charlottesville Virginia have been considered incendiary by many. This resulted in major political fallout and chaos for the current administration and has further alienated the president and lessened his support, even with his Republican constituents. Also, Politicians continue to have deep divisions when it comes to the United States budget, and the clock continues to tick. Concerns that President Trump is adamant about adding funding for the proposed Mexican border wall to the budget has certainly heightened the already existing anxiety. Clearly, Trumps economic agenda increasingly looks under threat.

    Market participants began to digest and glean information from speeches made by both Janet Yellen and Mario Draghi. Draghi’s speech made it crystal clear that he is in no hurry to conclude the current quantitative easing program and monetary stimulus in the European Union. Yellen’s speech was devoid of any news relating to a timetable for rate hikes or the initiation of their balance sheet liquidation. This reduced markets confidence on the Fed chair to follow through with rate hikes or any aggressive balance sheet action. This analysis was well supported by recent spate of economic data where slowing growth in July sales of both New and Existing Homes as well as a decline in Durable Orders added to concerns on economic growth. The U.S. consumer-price index rose 1.7 percent YoY in July, trailing forecast of 1.8 percent. A more sustained ebb in price pressures could make it tougher for the U.S. central bank to stay on course for one more rate increase this year as more Fed members turn increasingly concerned about not meeting the 2% target for a fairly long time.

    Escalating regional tensions around N. Korea have led to increased demand for gold. Kim Jong Un’s regime pushing on with missile tests and U.S. President Donald Trump vowing a stern response. The current North Korean regime can initiate actions based on the whims of a dictator who wouldn’t even stand accountable for his actions. This takes this current crisis to yet a whole new level given the unpredictability of both the leaders.

    Outlook

    With the looming potential for a government shutdown in the U.S, if the powers at hand are unable to come to an agreement on the budget and raise the debt ceiling, there is the potential for further economic upheaval in the United States. This, coupled with the current political turmoil in Washington, has put defined pressure on the U.S. dollar. The dollar could further get penalized as the European Central Bank embark on a tightening cycle and the US Fed stands pat on further tightening given concerns on inflation. This scenario stands a higher probability of playing out and should be supportive of gold prices.

    The odds of a government shutdown seem fairly high because Democratic support for the spending bill will be required, which will then force the Republicans in Congress to make some difficult concessions. Although, the tax cut is slightly more likely than not, the chances are clearly reducing and we maintain that if at all, it’s not going to be a meaningful one. If Trump fails to make real, tangible progress by October after these fiscal deadlines have passed, tax legislation will start to look less likely. The dollar weakness and increased uncertainty about Trump’s ability to pass his pro-growth agenda will be beneficial for gold to move forward.

    Given the current macroeconomic scenario, we expect downsides in gold to be capped and prices to move up gradually albeit with increased volatility. We expect the real positive trigger for gold would be when market expects Fed to be unable to normalize monetary policy and see it reverse its course at first signs of crisis.

    The world is in great uncertainty, 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 macro backdrop, gold will be a useful portfolio diversification tool and thereby helping you to reduce overall portfolio risk.

    Source: The World Gold Council, 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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