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  • August 11, 2017
    Market Outlook

    In the month of July 2017, S&P BSE Sensex gained 5.44% on a total return basis. This came on the back of benchmarks (S&P BSE Sensex, Nifty) touching all-time highs. In the first 7 months of calendar 2017 S&P BSE Sensex has appreciated by 23.34% providing a lucrative return to equity investors. S&P BSE Midcap Index gained 5.33% during the month whereas S&P BSE Smallcap index appreciated by 4.65%. Midcap and Smallcap indices have done fantastically well so far in calendar 2017, with rise of 29.01% and 34.14% respectively. The Reliance Industries stock gained 17.89% during the month gone by and 50.3% year to date. Among sector indices telecom, metal and banking were high flyers. FMCG, healthcare and consumer durables were laggard sectors for returns.

    Market Performance at a Glance

    Market Returns %

    July 2017January-July 2017
    S&P BSE SENSEX*5.4423.34
    S&P BSE MIDCAP *5.3329.01
    S&P BSE SMALL CAP4.6534.14
    BEST PERFORMER SECTORSTelecom, Metal, Banking
    LAGGARD SECTORSFMCG, Healthcare, Consumer Durables
    * On Total Return Basis
    * Source-Bloomberg

    FIIs in the month of July invested USD 389 million in Indian equities. In the 7 months of 2017, they have put USD 8.9 billion to work. Domestic institutions (DIIs) saw net inflow of USD 742 million for the month, with retail investors seduced by indices reaching new highs. While MFs invested USD 1.3 billion, insurers were sellers to the tune of USD 519 million. So far in 2017, DIIs have invested USD 4 billion. The Indian Rupee was on an appreciating trend against the U.S. dollar with 0.61% gain closing at around Rs. 63.96 to the U.S. dollar.

    On the global economy front, the U.S. has been growing steadily. Eurozone has seen a recovery in growth. However, it continues its low interest rate policy and is unlikely to withdraw huge liquidity already infused in the system anytime soon. Japan, the other developed market, is also struggling to get inflation in the economy. Loose monetary policy is likely to continue there as well. This surge of global liquidity together with low interest rates has seen prices of most financial assets soar to new highs.

    Among other notable events, U.S. President Trump failed to get Obamacare repealed. Repealing Obamacare was one of his major goals after becoming President. Divisions within his party led to the bill not passing through. One of his other focus areas is to curtail outsourcing business of Indian IT firms. The risk of severe curtailment of business of IT companies looks much lower now. While costs may rise for Indian technology companies, their revenue from North America is likely to continue unhurt.

    India’s macroeconomic scenario looks pretty stable. Recent inflation was noted at 1.5% which is a multi-year low. This led the RBI to reduce interest rates by 25 basis points in early August. Monsoon has also been progressing well throughout the country. This is likely to help the rural economy and keep food prices relatively stable.

    Indian corporates are in the process of announcing their first quarter results. Many companies have been impacted due to the transition to GST which went live from 01 July 2017. Many of stockists and dealers were not purchasing goods in the run up to GST, as they wouldn’t get the benefit of indirect taxes paid under the new regime. This hurt the topline of many companies. Now that the trade channel has started to restock, the scenario is likely to change.

    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 are some of the reasons behind the investment cycle remaining weak. We still see no rebound in the capex (Capital Expenditure) cycle, especially in the private sector. India’s largest engineering & construction (E&C) company witnessed 11% decline in new orders in the recent quarter. Capital expenditure has still some time before it contributes to economic growth.

    Ignoring near term disruptions caused by Demonitisation and GST, we remain optimistic about Indian equities in the long run. Weak commodities globally especially lower crude prices keep inflation under control and allow the government to use the savings generated to support the capex cycle. India remains a compelling long term structural story driven by the domestic Indian consumer and warrants an allocation in every long term investor’s portfolio. The sharp rally over the recent months despite subdued earnings warrants caution in the near term. Investors should add prudently to equity at this point of time.

    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.

  • August 11, 2017
    Bond Market Outlook

    As was widely expected, the RBI’s Monetary Policy Committee (MPC) cut the Repo rate by 25 bps to 6% in its August meeting. The 5-1 voting in favor of a rate cut also suggests that the decision was almost unanimous. They have, wisely though, chosen to remain ‘Neutral’ on the future course of monetary policy stance.

    This suggests to us that the bar for the next rate cut, if at all, is set higher.
    We may have seen the last rate cut in this cycle and the RBI is likely to remain on hold at 6% for some months to come.

    The downward trend in inflation in the last 4 months did create some room for a rate cut and the RBI has seized that chance.
    That the fall in inflation was broad-based, with prices of even services moderating, allowed the RBI greater comfort to cut the Repo rate.

    But it was only a 25 bps cut. With the RBI itself now projecting the CPI to rise above the 4% (its target) mark in Q1, 2018, it does not seem extremely confident of reducing the rates further. This should be disappointing to many who believed that based on the current inflation and growth trends, the RBI could have done more to support the growth revival.

    We believe that the current drop in inflation is to a large extent the result of the after-shocks of demonetization, which should reverse in the months to come.
    Food prices fell post demonetization and are increasing only now as demand-supply balance is restored with improved market functioning. Similarly, a drop in demand due to the unavailability of cash seems to have also impacted prices of general goods and services. The RBI has maintained its growth projections which suggests they expect demand to revive as the year progresses. They also indicated to the non-disruptive roll out of GST as a means of comfort to their GDP projection. The favorable monsoon and the good Kharif sowing of key crops suggest that food production and resulting farm incomes should support the demand recovery.

    Food prices though need to rise from the current levels to help improve the incomes of the farmers and alleviate some farm stress. The recent rise in vegetable prices could be the first signs of it and needs to be watched closely.
    The RBI also made a very strong reference to the fiscal deficit and farm loan waivers which indicate that they do not want to be complacent about oncoming risks to inflation and macro stability. The conditions appear balanced, but as we have noted in our earlier commentaries it would be prudent for the RBI to remain cautious at this stage of the cycle.

    We continue to maintain our view that the best of the bond market gains (in terms of capital gains) are behind us. Bond markets had completely priced in a 25 bps cut and hence we saw almost no change in the bond yields. Bond markets would remain range bound in the short term and await domestic and global trends to determine its future trajectory.

    The Indian Rupee maintained its upward trajectory supported by aggressive inflows from foreign portfolio investors and the weakness of the U.S. Dollar that we have seen in recent months. This will compound the RBI’s problem of managing excess liquidity if it chooses to buy foreign exchange to control the Rupee appreciation. We expect them to take stronger steps to suck out liquidity including issuing more Market Stabilization Securities (MSS) and conducting Open Market sales (OMO). They are also unlikely to increase the limits for foreigners into Indian bond markets anytime soon so as to manage the capital inflows better.

    Bond yields had peaked at 6.62% in July post the first announcement of OMO Sales wherein we increased our duration. But as the markets rallied sharply on lower CPI inflation print, we had reduced duration in mid-July to reflect our view that a 25 bps cut is completely priced in at the 10 year bond yield level of 6.40%-6.45% and maintained that strategy going into the monetary policy.

    We maintain our neutral stance over medium term, as it’s difficult for inflation to sustain considerably below 4% on the backdrop of a pay hike of central and state government employees and farm loan waivers. RBI’s OMO sales along with withdrawal of monetary stimulus in developed economies are likely to put upward pressure on bond yields.

    We remain positioned in the front end of the curve with lower than average maturity. We are likely to increase duration only on an increase in bond yields from the current levels. If the market gives up hopes on further rate cuts, then we can expect the 10 year bond yield to move towards the 6.6% level wherein, it might get attractive from a term spread and carry perspective.

    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.

  • August 11, 2017
    Quantum Alternative Investments Team

    We had cautioned investors earlier about the newly founded optimism of the U.S. Fed and their ability to follow up on their tightening promises. Given the follow through weak economic data mainly on the inflation, lower wage growth and overall growth numbers led to some reversing of assurance and the scaling back of hawkishness of Fed’s rhetoric on tightening. The resulting weakness in the dollar helped gold stage a strong comeback. The U.S. Dollar was also undermined amid continuing investigation into U.S. President Trump casting doubts on him been able to follow through his promised economic agenda. Gold prices managed a close at $1,269.4 an ounce, an increase of 2.2% for the month taking the year to date increase to 10.6%.

    When you look at markets you find many interesting puzzles, the latest is Gold. The U.S. Dollar is crippling and yet Gold has rallied, but nowhere near how far the dollar has fallen. Investors are ignoring any bad news they encounter: the collapse of the Trump legislative agenda, North Korea’s nuclear saber rattling, the criminal investigation into election collusion with the Russians, rising interest rates and QT, etc. Yellen also predicted that because of the measures the Fed has taken, another financial crisis is unlikely 'in our lifetime.' That’s a bold, history making, statement having known that such statements in the past have been proved wrong. 'We will not have any more crashes in our time.' This was said by John Maynard Keynes in 1927, two years before the stock market crash which lead to the Great Depression. This is now a confidence game and when confidence is shattered, the rush to the exits will be dramatic.

    The current weakness the U.S dollar is reminiscent of the Carter era of the late 70s. It coincides with a period when US lacked political and economic leadership leading a weak dollar that declined by 15%. As far as the current prospects of the dollar are concerned, the tide has begun to shift over the past few months and looks set to continue. With the U.S. equity market fully priced, capital continues to allocate towards European equities, where the valuations are more modest, creating flows into the euro at the expense of the dollar. The Fed is likely to resist further tightening until a clear picture develops on fiscal initiatives. With the issues surrounding the Trump administration concerning the Russian probe, it remains questionable how effective the administration can be in making progress on fiscal objectives.

    Outlook

    As expected, the Fed has clearly scaled back its aggression on further rate hikes. We believe it is imperative for the Fed to normalize rates sooner rather than later. But given the cautious dovish stance adopted by the Yellen led Federal Reserve so far, have they in their own view tightened prematurely given the recent inflationary trends? Not really. The Fed in this tightening cycle has been behind the curve and only tightened when the markets brought it on a silver platter. All the Fed has done to date is edge its targeted interest rates upward in a belated reaction to rising market interest rates. The market has therefore been pushing the Fed to raise its targeted interest rates for several years. Interestingly, the Fed has caught up with and is possibly now even a little ahead of the market. This suggests skepticism on the part of the market that economic and financial conditions will be conducive to additional Fed rate hikes over the coming few months.

    There’s a good chance that the Fed’s next move will be to start reducing the size of its balance sheet by not reinvesting all the proceeds from maturing debt securities. Unless the stock market witnesses a sizable decline, this balance sheet reduction will probably be announced in the September’s FOMC meeting and start its scale down from October 2017. When the balance sheet reduction does start happening it will constitute the Fed’s first genuine attempt to tighten monetary conditions.

    Fed tightening also represents the biggest risk to the current stretched valuations on Wall Street. While interest rates may be rising from an extremely low level, the sheer amount of aggregate debt in the developed world make these economies extremely vulnerable to any monetary tightening. Also, the optimism reflected in earnings is highly sensitive to small changes in interest rate expectations. This is particular the case in terms of consumption as it’s not supported by the real increase in median household incomes but by central bank liquidity.

    After the U.S elections, we believe the price of gold came down as the market priced in higher real interest rates in anticipation of lower regulations. We indicated that this euphoria will cede to realism, meaning that regulations might not be cut quite as much. However, the real positive trigger for gold would be when market expects Fed to be unable to normalize monetary policy and 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 macroeconomic picture, gold will be a useful portfolio diversification tool and thereby helping you to reduce overall portfolio risk.

    Source: Bloomberg


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

  • August 14, 2017

    Transparency at all Times

    First and foremost Happy Independence Day to all our investors.

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

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

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

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

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

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

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

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

    • Investments in debt / money market instruments

    Investors understand that their principal will be at Low risk

    * Investors should consult their financial advisers if in doubt about whether the product is suitable for them.


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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