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  • October 11, 2017
    Quantum Equity Team

    In the month of September 2017, S&P BSE Sensex lost 1.35% on a total return basis. Despite the fall, the index has gained 18.85% in first 9 months of 2017. S&P BSE Midcap index and S&P BSE Smallcap indices performed better than S&P BSE Sensex during the month with returns of -0.57% and +0.89% respectively. Both these indices have delivered stellar returns in 9 months 2017 of 29.74% and 34.67% respectively.

    Market Performance at a Glance
     
    Market Returns %*
     September 2017January-September 2017
    S&P BSE SENSEX**-1.3518.85
    S&P BSE MIDCAP **-0.5729.74
    S&P BSE SMALL CAP0.8934.67
    BEST PERFORMER SECTORSHealthcare, Auto and Metal 
    LAGGARD SECTORSTelecom, FMCG and Real estate 
    * On Total Return Basis
    ** Source-Bloomberg

    Among sectors, healthcare, auto and metal were among the best performers for the previous month. Telecom, FMCG and real estate were laggard sectors for the month. TRAI announcement to reduce drastically the interconnect charges by 60% and later abolish them reflected on the performance of telecom stocks. Reliance Industries stock was down 2.05% during the month.

    FIIs were net sellers during the month of USD 1.65 billion worth of equities. So far in the current calendar year, they have purchased stocks worth USD 5.5 billion. Domestic institutions (DIIs) countered the selling of FIIs with purchase of USD 3.2 billion during the month. While mutual funds bought for USD 2.4 billion, insurers also turned positive for the first time with buying of USD 797 million. The Indian Rupee had a significant depreciation during the month, of 2.15% against the U.S. dollar.

    Financial markets globally have been running on steroids of excess liquidity. There may be slight correction in that situation in future. U.S. Fed in its September meeting has taken steps to reduce its balance sheet. It plans to sell securities that it bought since 2008 financial crisis. Of the USD 4.5 trillion expanded balance sheet, it will unwind starting with USD 10 billion per month. This amount will climb gradually over time.

    Europe on the other hand still continues to maintain interest rates at near zero levels. Despite the improvement in economic situation, it is unlikely to change interest rates in near term. Japan, the other major developed economy, is facing some political uncertainty. Its Prime Minister has called for snap elections, looking to consolidate his majority further.

    India's broad macroeconomic indicators look stable, even as it has not fully capitalized on the opportunity offered by low commodity prices and political certainty in past 3 years. Inflation at 3.4% remains manageable and interest rates are at subdued level. Fiscal deficit and current account deficit remain under control. Crude oil prices remain under USD 60 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. Monsoon has been close to normal, with 5% deficiency.

    Events such as demonetization and poor implementation of GST have slowed down GDP growth considerably. GST system which was a landmark reform in indirect taxation, has a number of glitches. Companies are unaware of tax amount to be paid, which should be communicated by the system. This leaves room for confusion and litigations. Smaller businesses are in greater trouble to comply with the new tax system. These events, especially demonetization, put India on a path much below its potential growth rate. Right wing fundamentalism such as cow protection is having impact on animal husbandry and agriculture sector.

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

    While animal spirits have not been unleashed in the economy, the same is not true for equity markets. Primary issuance through IPOs in the current year is reaching new highs. Companies have tapped the markets to raise 17 billion USD equity in 2017 year so far, which is the highest since the heady days of 2007.Valuation demanded by many of them leave no upside for the investor.

    Fund 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.

  • October 11, 2017
    Quantum Fixed Income Team

    The Indian bond yields grinded higher in September. The ascent in yields was in line with the up move in global yields after US Federal Reserve started the process of trimming down its USD 4.5 trillion balance sheet. Media reports said that government may expand fiscal deficit to stimulate growth also hit the market sentiment. The 10 year benchmark bond yield rose by 14 basis points (100 bps = 1%) to end the month at 6.66% as against the close of 6.52% in previous month.

    The Monetary Policy Committee (MPC) of the RBI kept the policy rates unchanged at 6% with a vote of 5-1. It retained the neutral stance with the objective of keeping the CPI inflation near 4% (with +/- 2% deviation), while supporting growth.

    Though the move was broadly in line with our expectation but we anticipated a dovish tone from RBI reflecting on slower economic momentum. The RBI did not pay much heed and seemed optimistic about the growth recovery. It did, though, cut its GVA estimates down to 6.7% from 7.3% for FY 18. It also raised the CPI projection for H2FY18 marginally to 4.2%-4.6% and highlighted upside risk to inflation from farm loan waivers and fiscal slippage.

    Consumer Price Inflation for the August rose to 3.36% yoy (vs 2.36% in July) on the back of cyclical increase in food prices and sharp upward revision in prices of petrol and diesel. The core inflation which excludes food and fuel also shown sharp uptick in August primarily due to hike in house rent allowance under 7th pay commission and initial effects of GST implementation. Going forward as the base effect dissipates and the full effect of HRA revision shows up, we expect the CPI inflation will move towards RBI’s medium term target of 4% by Q3FY18 and move up further to around 4.5% by March 2018. These projections include the direct statistical effect of HRA hike for government employees which RBI has long communicated that it will look through. Excluding housing from the headline CPI and recalculating CPI-ex housing, suggests that CPI will remain below the 4% target and thus offer Real Interest Rates of well more than 2%.

    Liquidity with commercial banks remained in surplus to the tune of Rs. 2 trillion. We expect that liquidity surplus will come down as currency withdrawal from banks may increase during the festive months of October-December. However, the liquidity situation may still remain in surplus mode and RBI needs to continue the OMO (Open Markets Operations) sales to bring it to neutrality.

    Developed market central banks remain on track of policy normalization as economic data continued to be supportive. US Federal Reserve initiated the program to normalize its balance sheet which swelled to USD 4.5 trillion following Quantitative Easing (QE) programs post 2008 financial crisis. Beginning this month, it would reduce the holdings of US treasury bonds and mortgage-backed securities at a pace of USD 10 billion a month which will increase to USD 50 billion a month gradually. Additionally, the Fed was slightly hawkish on rates front and indicated a possibility of a rate hike end of 2017 and three hikes in 2018. European Central Bank (ECB) may also reduce the amount of bond purchases as economic data continue to surprise on the upside. Bank of Canada and Bank of England are also moving on the path of tightening.

    Outlook
    Despite the rollback of accommodative policies in developed economies, we expect that high real rates and comfortable balance of payments position will continue to attract foreigners into Indian debt market. Going ahead the bond market will face some tough times as fiscal and inflation risk play on investors mind in the backdrop of no monetary support from the RBI. However, valuations have become attractive after the recent sell off.

    Any increase in fiscal deficit remains the most critical risk to sentiment towards bonds and will be the key metric to track. A large increase (more than 0.5%/GDP) will be seen very negatively by the bond market and can lead to a further sell off in bonds. Anything less than that can be absorbed by the market even at current levels.

    In the current inflation targeting regime of 4% (+/-2%) Headline CPI Inflation + (1%-2%) Real Interest Rates, there is very little chance for the Repo rate to meaningfully go and sustain below 6%. In view of this we maintain our medium term neutral stance over rates. However, we will keep looking for signs mispricing in market and will positioned to exploit the opportunity tactically.

    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.

  • October 11, 2017
    Quantum Alternative Investments Team

    The specter of higher rates as implied by Fed’s hawkish posture accompanied by a seeming attempt to unwind Fed’s bloated balance sheet led to a renewed strength in the dollar and declining gold prices. Odds of a Fed rate hike by December rose to about 70%, up from less than 30% a month ago. Markets perceived a remarkable shift in political focus in Washington from the hapless health- care overhaul to more growth-friendly issues like tax cuts and reforms aggravated pressure on gold prices. The backdrop of rising geopolitical tension didn’t prove enough to stall the decline in gold prices. Gold prices ended the month below the psychological $1300 an ounce mark at $1280, a decline of 3.1% for the month.

    A risk-on environment as well as a high probability that the Federal Reserve will implement one last interest rate hike for this year have weighed heavily on the price of gold. The signal that an interest-rate hike in December was probable and less impactful than the overall tone which suggested that the Fed would raise three additional times in 2018. Fed’s hawkishness is largely relating to the urgency related to normalize monetary policy as opposed to the presence of an ideal economic backdrop. Yellen said that it would be imprudent to leave rates on hold until inflation reaches 2% this year. She also admitted that the Fed may have misjudged the recovery but insisted that rate hikes were coming and that gradually raising interest rates is the most appropriate policy approach amid higher uncertainty about inflation.
    Federal Reserve also announced the initiation of their process to liquidate the massive $4.5 trillion balance sheet starting October, with the initial liquidation of $10 billion. The great unwinding contains uncertainty. Never in the history of the Federal Reserve have they acquired such a massive balance sheet, nor have they moved towards a process of liquidating that balance sheet.
    In as much as the tension between North Korea and the United States has escalated to a new level, it is still for the most part based upon threats and rhetoric from both sides. Yellen’s hawkish comments overshadowed the earlier heated North Korean war of words.

    Outlook
    As the Fed prepares to shrink its $4.5 trillion balance sheet from October, the bank could also lower its prediction for the pace of further rate hikes as price increases stay muted. The fact that the Fed members lowered their forecast for their own future Fed funds rate indicates that the Fed may again kind of undershoot what they’re predicting they’re going to do for rates.
    The intent may be there but it will remain data dependent and there is no certainty that U.S. economic growth can sustain that level of tightening. Unexpected decline in August retail sales raised concern over the economy’s strength. The August decline in sales and downward revisions to the prior months make it more likely that consumption, the biggest part of the economy, will be hard-pressed to match the 3.3% growth pace of the prior quarter. The Fed’s Beige Book report also revealed that the majority of districts reported limited wage pressures and modest to moderate wage growth. Federal Reserve Governor Lael Brainard’s comments also reflected a similar sentiment who said that the U.S. central bank needs to pay careful attention to underlying inflation before raising rates again, as longer-run price pressure trends appear to be lower.

    Gold could quickly recover from its recent slide as the Federal Reserve may raise interest rates less than forecast because of low inflation and also there lies high probability for U.S. tax reforms to disappoint, while global political risks abound. Tax cuts and infrastructure spending do help boost the economy. However, this requires huge funding and the more relevant question is that where is the money coming from? It’s premised on hope. Let’s spend now and the resulting growth will pay the bills later. The deficit will balloon, and if the Fed raises rates, it will create higher borrowing costs to service the growing deficit and in no time the dollar will come under pressure. In conclusion, U.S. fiscal policy represents the biggest upside risk for gold and all the more when other central banks are looking to join the monetary policy tightening bandwagon.

    Given the current macroeconomic scenario, we expect downsides in gold to be capped and prices to move up gradually albeit with increased volatility. We reiterate that 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 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 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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