Equity Monthly View for July 2024

Indian markets continued to well in July; BSE Sensex advanced by 3.5%. BSE Midcap Index advanced by 5.5% & BSE Small cap Index advanced by 6.2%. Global markets performance was mixed bag with S&P 500 advancing by 1.2%, majorly supported by US Tech majors. MSCI Emerging Markets Index advanced by 0.36% during the month with China and Taiwan being a major drag.

Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 3.9% in its NAV in the month of July 2024; Tier-I benchmark BSE 500 and Tier-II Benchmark BSE 200 increased by 4.4% and 4.3% respectively. Portfolio holding within IT services, pharma and insurance helped our performance; banks and autos were the key drags. During the month, we continued to trim aggressively in consumer discretionary (auto) and added to a bank position where risk -reward looks favorable. Cash in the scheme stood at 13.4%.

During the month, some of the portfolio companies reported their results. Banks witnessed moderation in credit growth given the weak deposit accretion in the system. Credit costs across most banks are also normalizing after past two years of strong recoveries. We continue to be positive on banks especially private sector players given the fact that; valuation is reasonable accounting for normalized level of growth and credit cost.

Large IT services players commentary suggest gradual pickup in banking vertical (~30%+ of revenue mix) and US geography; given some of developments around worsening macros we would continue to monitor the sustainability of this demand. Some of the consumer discretionary players (Auto) continue to report margin improvement and demand sustenance. Given the strong performance in the recent past and near full valuations we continue to trim our holding here.

Globally some of the key updates during the month were Fed maintaining status quo on interest rates but some of the recent data prints suggest slowing down US economy which increases the probability of rate cuts in the coming months. Bank of Japan did an out of turn increase in interest rates which may have implication on risk assets across the globe. Back in India, the economic indicators continue to point mixed signals. Credit growth has moderated compared to last year; auto volumes has remained stable; certain segments such as PV (Passenger Vehicle), Tractor have witnessed declines. Other high frequency parameters such as IIP (Index of Industrial Production), electricity consumption, passenger/freight traffic suggest steady growth in economy.

Key event from market standpoint was the budget. In our view budget is almost identical to the interim budget baring some announcements related to job creation, tax changes and lower fiscal deficit. It will not materially change the earnings trajectory. Fiscally the budget was prudent and consolidation trend continues with fiscal deficit pegged at 4.9% in Fiscal Year ending March 25 compared to 5.8% in Fiscal year ended March 24 and 5.1% in the interim budget. The primary focus of budget announcements was on employment generation with the finance minister announcing multiple new schemes to encourage first time hires.

From portfolio standpoint some of the announced schemes are marginally positive for Banks/HFC (Housing finance companies) and building materials space. Tinkering on taxation is negative for broking/Asset management companies. Some of the auto names with higher exposure to rural may benefit from increase in government allocation to rural India.

The key near term is risk are emanating from global macros such global growth/inflation trajectory and central bank policies around these. While India continues to enjoy favorable macros and good corporate earnings growth; the valuation remains on the higher side. Thus, investors should moderate their return expectations; maintain the right asset allocation at all points in time and prudently invest towards equity.

Data source: Bloomberg

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer of scheme	Riskometer of Tier I & Tier II Benchmark
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy. Tier I Benchmark: BSE 500 TRI Tier II Benchmark: BSE 200 TRI	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in BSE 200 index	Investors understand that their principal will be at Very High Risk

*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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