Equity Monthly View for February 2025

Data source: Bloomberg

Past performance may or may not be sustained in the future

Indian markets witnessed sharp sell-off in the month of January on the back of continued FII selling (USD -8.6Bn in January 25 vs USD -755Mn for CY2024). Weak earnings print and relatively higher valuation w.r.t other EM countries continue to put pressure on Indian equities. Globally, S&P 500 and Dow Jones outperformed the BSE Sensex driven by expectation of better prospects for domestic US companies on the back of favourable policies by Trump administration. MSCI EM Index increased by 1.8%.

Key developments globally from an equity markets perspective were Trump Tariff threats, unchanged US Fed US rates and fears of disruptions in AI industry due to Chinese AI tool DeepSeek. Policy announcement from US so far, may not have a direct impact on India, but in general could be weigh down the prices of commodities globally. We expect higher global rates to continue weighing down on valuations across markets and earnings disappointment may lead to significant derating in richly valued companies.

Quantum Long Term Equity Value Fund (QLTEVF) saw a decline of -1.6% in its NAV in the month of January 2025; Tier-I benchmark BSE 500 and Tier-II Benchmark BSE 200 declined by -3.4% and -2.3% respectively. Our performance for the month was helped by higher exposure to the banking, auto and IT sectors, which fell less compared to the index. During the month, we continued to add into financial space, mostly banks and insurance. Cash in the scheme at the end of the month stood at 14.5%. Charts 1and 2 capture the extent of fall in the Top 1000 companies from their 52W High.

Source: Bloomberg; Data as of 03-Feb-2025

The recent earnings season continued to witness steep earnings cuts in quite a few sectors. Lending space has witnessed an increase in credit cost amidst tight liquidity environment. RBI announced a series of measures to improve liquidity in the banking system; this is welcome step to help revive the ailing deposit growth. FMCG/paints pack is reeling under consumption slowdown and heightened competition. The IT sector has witnessed improvement in commentary, but the growth remains muted. We continue to remain positive on financial space especially private sector banks and large IT services players. Incrementally, we will look to deploy cash in hand as the valuation becomes more conducive.

The Union budget was announced on 1 Feb 2025. The government has attempted to boost consumption which has dragged economic growth in recent years. The change in personal income tax slabs now make income up to Rs 1.2mn exempt from taxation under the new tax regime. The tax forgone is ~ Rs 1 trillion equal to 0.3% of GDP. Given inflationary pressures and lack of wage growth in the past few years, this may not have a significant impact on consumption. Moreover, exemptions are foregone as taxpayers switch from old tax regime to new tax regime; which may reduce this estimate thus lowering the stimulus. These measures can lead to a GDP boost of ~0.6%; assuming 2x Multiplier and the entire tax saving is captured by the individual. Other key takeaways from the budget from an equity standpoint are:

• FY26BE Direct tax growth assumed looks aggressive to us in the wake of personal income tax cuts and high base of capital gains tax. Valuation in capital goods/infra sector could be at risk if the FY26E revenue receipts are to cut. Moreover, the central capex outlay remains flat vs FY25BE.
• The consumption boost can be marginally positive for sectors such as Consumer Discretionary, Staples and Retail sectors. The entire tax benefit may not be spent on consumption but could be used to repay loans taken earlier or may not increase purchasing power after adjustment for inflation.

What should investors do?

In our view, valuation despite the market correction in the month of January remains elevated. Thus, we are cautiously deploying the cash in the fund. The key near term risks to watch out for are recovery in earnings trajectory, Trump tariff implications and weaking global macros. Thus, investors should maintain the right asset allocation at all points in time and prudently invest towards equity.

Name of the Scheme	This product is suitable for investors who are seeking*	Scheme Riskometer	Benchmark Riskometer (Tier I) - BSE 500 TRI & (Tier II) - BSE 200 TRI
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy.	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in BSE 200 index

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

Above article is authored by Quantum.

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