Equity Monthly View for May 2024

BSE Sensex declined by -0.28% in the month of 2024. BSE Midcap Index increased by 1.8% & BSE Small cap Index was flat. Global markets did well, driven by strong earnings from US Tech majors and resurgence of China within the EM basket. S&P 500 increased by 4.9%; MSCI Emerging Markets Index increased by 0.59% during the month.

Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 0.83% in its NAV in the month of April 2024; Tier-I Benchmark BSE 500 TRI and Tier-II Benchmark BSE 200 TRI increased by 0.85% and 0.88% respectively. The performance was majorly contributed by consumer discretionary, metals and telecom sectors.

During the month, we trimmed few positions in auto and exited out of utility player where upsides was limited. We increased our weights in existing portfolio stocks which include a private sector bank, life insurance player and IT Services. We believe valuation are attractive in some of these pockets in an otherwise, valuation rich environment.

Election Outcomes Don’t Matter in Long-Term

The recent national election outcomes were different from widely anticipated strong majority for NDA led government. The key focus of the government in the past few years has been investment led growth and as a result some of the underlying sector such as construction, capital goods and defence has done quite well. Some themes, which have done well in the recent, baking in strong government capex spend may be at risk if the government priorities are incrementally different in a coalition setup.

Over the longer term, election outcomes don’t have bearing on India's longer-term outlook which has been at ~6.2% real GDP growth, across governments. This growth rate has stood the test of times, across governments (be it coalition governments, single party rule); across macro shocks (high crude price, strong dollar, weak global growth etc). Thus, irrespective of government coming in place, India will continue to grow at 6-6.5% real GDP over long period of time, in the foreseeable future. At 6-6.5% real GDP growth and ~5% inflation the nominal GDP growth works out to be ~11.2%. India’s has a good correlation between nominal GDP growth and long-term equity returns. So clearly economic growth has translated growth of large, listed enterprises.

We have also witnessed policy continuity across various governments which has resulted in continued economic momentum and eventually resulted in equity returns. Across different regimes, governments in power have adopted incremental approach to reforms focused on Infrastructure Building, Trade Liberalization, Easing FDI norms, Disinvestment from PSUs and financial inclusion. While the thrust to each of these aspects may vary depending on government in power but in general there has been clear policy continuity across governments. All of them want to develop market driven economy, liberalise/privatise segment of markets. We don’t except any major change from this trend going forward also.

What should Investors do?

Clearly the election results were not in line with market expectations and that does create near term uncertainty in an environment where valuations are in general expensive. But as we have established that election outcomes don’t have much bearing on India’s policy framework and economic growth and equity returns over the longer term. Thus, investors should not be unnerved by the near-term uncertainty and focus on allocating prudently to equities based on their financial goals. Any sharp correction in the current environment can offer additional valuation comfort and should be used to allocate more to equities with a long-term perspective.

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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