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  • June 08, 2018
    Quantum Equity Team

    S&P BSE Sensex appreciated 0.71% during the month of May on total return basis. S&P BSE Mid cap and S&P BSE Small cap indices performed much worse during the period with fall of 5.86% and 6.24% respectively. In the 5 months so far of 2018, S&P BSE Sensex rose 4.17%, whereas Mid cap and Small cap indices fell approx. 10% each on total return basis.

    Among sectors, banking and FMCG did well and were in positive territory. Healthcare, real estate, consumer durables and telecom were among the sectors which declined the most.
    FIIs were net sellers during the month of May. They sold stocks worth USD 1.43 Bn during the month. So far in current year FIIs have offloaded USD 245 Mn worth of stocks. Domestic institutions have been buyers to the tune of USD 2.2 Bn for the month countering FII action. In 2018 so far, DIIs have been purchasers of USD 7.4 Bn. Indian rupee depreciated during the month by 1.1% against US dollar

    Market Performance at a Glance
     Market Returns %*
     May 2018
    S&P BSE SENSEX **0.71%
    S&P BSE MIDCAP **5.86%
    S&P BSE SMALL CAP**6.24%
    BEST PERFORMER SECTORSBanking and FMCG
    LAGGARD SECTORSHealthcare, Real Estate, Consumer Durables and Telecom
    * On Total Return Basis
    ** Source-Bloomberg

    Among global events, US trade tariffs on China and other countries dominated news. In a retaliatory move, affected countries also threatened to increase tariff on US imports. Other event with economic and financial ramification was US decision to scrap nuclear deal with Iran. This put a lot of doubt on the country to honour its agreements. Crude oil prices flared up consequently on concerns of fresh sanctions on Iran as its oil output could decline.

    There have been concerns on dollar liquidity recently. US interest rates are rising given that unemployment rate has been low and output gap is closing. There is a likelihood of them rising further as the economy picks strength. Rising interest rates 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.

    Macroeconomic scenario has deteriorated for India in the recent past. Inflation has increased to c5% level. This is likely to keep interest rates at higher level. Crude price 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 overtime 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 nations. Valuations, however, leave moderate upside in the near term. Investors at this point should continue to invest in equities through SIPs.

    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.

  • June 08, 2018
    Quantum Fixed Income Team

    Bond markets were driven by two major factors in May; tightening domestic financial conditions and emerging market volatility. Market rates across segments and maturity profiles rose sharply in last two months. The 10 year government bond yield surged by 43 basis points (bps) in last two months to close at 7.83% and 10 year PSU bond yield moved up by 40 bps to 7.55%.

    The shorter maturity of the curve witnessed more intense sell off as the yield on 3 year government security rose by 60 bps in April and May to 7.7% while the yield on 3 year PSU Bonds with AAA rating rose by around 75 bps to 8.45% in the same period. Money market rates also manifest the similar tightness as the 1 year commercial paper issued by public sector companies are currently trading at 8.3%.

    Emerging markets (EM) Debt have seen a good chunk of global capital flows in the last year. But recent spike in market rates in US and Europe tested the investors’ confidence on EM in the last month. Financial Markets and currency of some of the EM countries like Argentina, Turkey and Indonesia sold off very sharply.

    Looking at this sell-off many market experts started drawing parallels with 2013 like scenario in India. We do not see any imminent signs of such event. Although macro situation is deteriorating, it is still far better than what it was in 2013. The recent rise in crude oil prices may raise the current account deficit to 2.5%-3% of GDP, but it may not turn into balance of payment crisis.

    The RBI now has better firepower in the form of high reserves position which stands at USD 425 billion or 10 months of import cover. Inflation is on upward path but going by the historical trends Inflationary pressures are far more subdued. The central government also reduced the fiscal deficit substantially since 2013 and also improved the quality of spending by allocating more on productive sectors while reducing the subsidy burden over the period. All said, we cannot rule out a temporary selloff in Indian bonds and currency if the sentiment on emerging markets worsens. But we believe if it happens that will be an opportunity to invest.

    The recent rise in crude oil prices has put the Government on crossroad to choose between fiscal position and inflation. If the government reduces taxes on petrol and diesel, it will worsen the fiscal position and if it passes on the entire rise in the crude price to consumers it will add to inflation. In either of the cases it’s not good for bond markets. Though State governments do have scope to reduce VAT rate as collections from VAT rises in proportion to increase in prices.

    CPI inflation accelerated in April to 4.6% yoy vs 4.3% in March. While the food inflation remained benign, non-food inflation pushed the headline higher. Food inflation moderated for the fourth consecutive months as seasonal increase in vegetable prices pushed back further. Core CPI (CPI ex food and fuel), which was highly sticky around 4.5%-5% in last 3 years, surged to 5.9% in April. The recent momentum in core inflation is manifestation of underlying inflationary pressures emanating from strong domestic demand and rising input costs. Inflation expectations are also inching higher. Apart from this rising global oil prices will also creep into retail inflation in coming months. We expect CPI inflation to average close to 5% in FY2019 and will likely remain above 5% in FY20 if oil remains elevated.

    In its June meeting, the MPC (Monetary Policy Committee) of the RBI voted 6-0 to hike the Repo rate by 25 bps to 6.25%. This 25 bps rate hike by the RBI, the first in four and a half years, should be seen as a reversal in the interest rate cycle. But the RBI retained its stance at neutral which suggests that it wants the flexibility and to be data dependent. It also conveys that we may not be in a long rate hiking cycle and the rate hikes are more pre-emptive against emerging inflation risks.

    Bond markets have already priced in a 50 bps rate hike and thus we do not see much impact on bond yields from this rate hike. The 10 year bond yield did go up by 6bps post the policy but more in response to lack of clarity on OMO (Open Market Operations) purchases and also due to the changes in Liquidity coverage ratios which will potentially affect demand for long term government bonds.

    The bond market, suffering from poor demand, was expecting more OMO (Open Market Operations) purchases (RBI buying government bonds) to help support the market. Dr. Patel though belied those expectations ignoring the spike in short term money market rates and preferred to relay only on the weighted average call rates for their liquidity assessments. Though the call money rate remains close to the repo rate, we believe market interest rates are much tighter and higher than what the RBI would like it to be at the current growth and inflation environment.

    Today, although the overall liquidity situation appears in surplus, but pockets of PSU banks under Prompt Corrective Action (PCA) cannot lend and have surplus liquidity while some other banks witnessing credit growth do not have that excess liquidity. If the RBI indeed acts on the liquidity front in an assertive manner, we would see short term market interest rates falling sharply from its current levels.

    India government bond yields now at around the 8.0% mark and the shorter end AAA PSU corporate bonds at 8.5% have priced in significant uncertainty risk premium. Uncertainty on Oil prices, foreign investor behavior, rupee movement, liquidity actions.

    The 10 year government Bond yield will likely remain in the 7.70% - 8.0% range for now and move above towards 8.25% if the markets expect RBI to hike by more than 50 bps.

    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.

    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.

  • June 08, 2018
    Quantum Alternative Investments Team

    May has historically been a weak month for gold. With a second consecutive monthly loss, gold erased all of this year’s gain despite the risk aversion now rippling through markets. The reason lies in the greater appeal of U.S. Treasuries and a rising dollar as it extends its rally to the highest in more than three months. With political crisis in Italy driving European fixed-income meltdown, investors are rushed into the relative safety of U.S. Treasuries, underpinning the dollar. The prospect of rate hike in June in the U.S also kept gold prices under pressure. Gold ended the month below $1300 an ounce mark with a loss of -1.3% for the month.

    The political crisis in Italy spooked the global marketplace this week when the Italian Democratic Party called for parliament to be dissolved immediately in order to hold elections in Italy as soon as July. If the crisis continues and leads to this election taking place, it will create more doubt in the minds of investors on whether Italy keeps the euro as its currency. And if Italy leaves, it’s unlikely the euro could survive. Although, the immediate concerns seem fading by the end of the month, it’s far from over as yet.

    While retail sales numbers in the U.S were encouraging, the lack of wage growth and inflation has continued to be a matter of concern. Average hourly earnings increased 0.1% from the prior month and 2.6% from a year earlier, both below projections. Although, the Fed would proceed with a rate hike in June, they would surely proceed with caution on the rate hike trajectory going forward. The market odds of the June hike are 90%. So it is an almost certain move, the move is practically already priced in them. However, the market has tended to sell gold ahead of previous rate hikes only to rally afterward.

    Outlook

    The geopolitical issues that have been supportive of gold prices such as the current trade dispute between the United States and China, the summit between the United States and North Korea, Iran Sanctions and the newest wildcard placing the euro zone in financial jeopardy with Italy’s political upheaval and massive €2.3 trillion-dollar debt.

    In Italian politics, while the Five Star and the League did not campaign explicitly for a Eurozone exit, their proposed policies surrounding tax cuts and fiscal spending will put them in direct confrontation with the Eurozone and its “one size fits all” fiscal rules. But the critical unknown at this juncture is whether the Italian electorate is willing to face the threat to their savings and pensions that would result from a euro exit. The current status quo is not sustainable in the Eurozone; either the Eurozone moves incrementally to a more coherent fiscal union to complement monetary union or the growing political pressures will lead to an eventual breakup.

    The Federal Reserve is on course to shrink its balance sheet by US$420 billion or 9.4% this year and by US$600 billion 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$15.2 trillion 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$16.3 trillion 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 revised tax tables for 2018 have not really started to have a big effect yet on the 12-month trailing total of federal tax receipts, but in the months ahead we can expect that factor to start bending the receipts line lower, and thus the deficit line higher. Actually, an irresponsible U.S. fiscal policy is supportive of gold prices.

    Fed’s balance sheet normalization would push rates higher and therefore impact its own resolve for 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, Feds attempt to get ahead of its QE unwind is providing 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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