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  • February 14, 2018
    Quantum Equity Team

    In the month of January 2018, S&P BSE Sensex climbed 5.6% on a total return basis. S&P BSE Mid cap and S&P BSE Small cap indices saw negative returns during the month after outperforming S&P BSE Sensex for long time. 2.57% and 2.66% was decline in BSE Mid cap and BSE Small cap indices respectively. Reliance Industries stock rose 4.37% in January month.

    Sectors which underperformed during the month were telecom, auto and power. Aggressive new tariffs announced by Reliance Jio last month has likely hurt the telecom industry. IT, banking and capital goods were among the sectors which gained most in January.

    FIIs during the month invested USD 2 Bn in Indian equities. Domestic institutions were buyers to the tune of USD 63 Mn. While MFs were net buyers of USD 1.2 Bn, insurers were net sellers of USD 1.1 Bn. Indian rupee appreciated 2% during the month versus US dollar.

    Market Performance at a Glance
     Market Returns %*
     January 2018
    S&P BSE SENSEX**5.6%
    S&P BSE MIDCAP **-2.57%
    S&P BSE SMALL CAP**-2.66%
    BEST PERFORMER SECTORSIT, Banking and Capital Goods
    LAGGARD SECTORSTelecom, Auto and Power
    * On Total Return Basis
    ** Source-Bloomberg

    Globally economic growth has been strengthening. There has been a synchronized activity pick up in developed economies, particularly US and Europe. Interest rates, which were closer to zero earlier, are in the process of climbing up. As we have pointed out earlier, increase in interest rates in developed world can negatively impact equity prices in emerging markets such as India. Excess money coming to EMs could stop as investors are able to get returns in home markets.

    Union budget was announced by Government on 1st February. Boost to farm economy was key deliverable from the budget, expected given this was the last budget before elections. There are also plans to cover a large part of population under free health insurance provided by Government, though it is unclear how resources are found for it. A negative for equity investors was the introduction of long term capital gains of 10% on sale of Equity shares / units of Equity oriented Fund if more than Rs 1 lakh. Since there is no indexation allowed for capital gains, even inflation will be taxed.

    Government has set fiscal deficit target of 3.3% for fiscal 2019, higher than 3% planned earlier. Minimum support prices (MSP) has been set at 1.5 times input costs, this could raise price of food items. Together with crude oil which has been rising, there is risk of inflation rising in the economy.

    Many listed companies have announced their results for 3rd quarter of fiscal 2018. Overall financial parameters such as topline and profits have seen an increase over past year. Better performance is helped by lower base given demonetization in Q3’17. Many capital goods companies are reporting healthy growth in order flows. Much talked about recovery in profitability could finally be around the corner.

    There has also been infusion of Rs 880 Bn in PSU banks during the month, part of Rs 2.11 Trn recapitalization plan for PSU banks. Weaker banks got larger share of the pie. This money is likely to help them to meet higher provision requirement as well as provide capital for future growth.

    Barring a few sectors, valuations of stocks are at high levels. While share prices have run up, earning of companies haven’t caught up. High level of liquidity globally has driven up stock prices. Markets have fallen recently, however not much value has emerged yet. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can expect decent return from equities over a long period in future. Valuations, however, leave moderate upside in the near term. Cash levels in our equity schemes remain higher than historic average, as there are very few buy ideas. Investors at this point should continue SIPs but refrain from taking large fresh position in equities.

    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.

  • February 14, 2018
    Quantum Fixed Income Team

    Since the third quarter of 2017, the Indian bond markets have been under series of negative shocks coming from uptrend in crude oil prices, rising inflation, fiscal imbalances, global yields, demand supply mismatch etc. This resulted in more than 130 basis points (100 bps= 1%) rise up in yields on government bonds. In the last month the negative sentiment was lot more dominant; which even forced the RBI to cancel a significant chunk of Government’s borrowing auctions in the month because of lackluster demand. During the month the yield on 10 year benchmark bond (old security) moved up by 27 basis points from 7.33% to 7.60%. The new 10 year benchmark bond which got auctioned at 7.17% in the first week, also sold off by 26 basis points to close the month at 7.43%.

    In the budget of 2017-18, the government had committed to bring down the fiscal deficit to GDP to 3.2% in FY18 and to 3.0% in FY19. But in this year’s budget, the government had to increase the Fiscal Deficit to 3.5% for FY18. They have also changed the glide path of fiscal consolidation by setting the fiscal gap target at 3.3% in FY19 and to cut it down to 3% only by FY21. This year, although we find it strange, the reaction of the bond and currency markets to the announcement suggests to us as a Popular and a Populist Budget.

    A plain look at the budget numbers and the budget documents does not suggest any populism as the overall expenditure is slated to grow only by 10%. Lower than nominal GDP growth of 11.5%. Many major / flagship schemes of the government despite the rhetoric have seen a decrease or minor increase in allocations. The revenue assumptions also seem realistic on the back of the recent growth trend in tax collections and tax payers’ base. The non-tax revenue target is significantly lower than our estimate which explains why the fiscal deficit is higher despite no major increase in spending.

    We recognize the challenges of getting the fiscal deficit around the 3% of GDP mark. With Taxes to GDP ratio well below EM peers, India’s fiscal deficit will remain at 3%/ of GDP for some more years. But in a scenario where macro-economic risks are rising (oil prices, higher current account deficit, changing global monetary policy cycle); one would want the government and the RBI to be conservative and prudent.

    In a move to remunerate farmers, the government also announced to set Minimum Support Price (MSP) at minimum 1.5x (times) of their cost of production for all major crops. The bond markets clearly seemed spooked by the government’s move as higher MSPs can have inflationary implications over time. PM Modi had announced doubling of farm incomes by 2022 and with the re-election due next year; the government seems to have played the poll bugle early to fulfill its promises. Despite rising production, nominal farm incomes are dropping and thus the move to assure farmers income through the Minimum Support Prices (MSPs) seems justified. However, price support alone will not be enough to resolve the issues of rural population and government needs to do more in agricultural marketing reforms and invest heavily in rural infrastructure.

    The RBI kept Repo Rates unchanged but was understandably cautious in its outlook with the pressures building on inflation from oil prices, potential MSP (Minimum Support Prices) increases and fiscal slippage. Following the increased fiscal deficit and new MSP framework, the RBI chose to take a longer than normal outlook to base their monetary policy stance. The RBI expects CPI to be 5.1%-5.6% in April – September 2018 and then expects it to be in a very narrow band of 4.5%-4.6% from October 2018 – March 2019. It seemed they are deriving comfort from that inflation projection of 4.5% for second half of FY 19 being close to their 4% target and thus indicative that it would continue to remain on hold, until that number needs to be revised upwards. Looking that far out, they also seem to be buying time, as they said, ‘that the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path through conducive and stable macro-financial management”.

    Bond yields across the curve remain under-valued. With the Repo rate remaining at 6.0%, 1year Bank CDs and 10 year bonds at 7.5% are well above the long term spread averages. Longer term government bond yields have seen an increase steadily over the months but even the short term corporate bond/ CD rates have seen a spike in the recent months. Markets clearly seem to be ‘over-pricing’ the RBI rate action and the ‘seasonal’ liquidity tightness.

    Going ahead, market will closely watch the extent of MSP increases for the Kharif crops which will be available by May 2018. By that time, we would also get the first estimate of the monsoons, which given the low water reservoir levels, assumes significance for food production and prices. The RBI policy for June 2018 thus becomes a ‘Live’ one with implications on future rate trajectory against the desire and need to remain on hold for longer. Until then, the bond market trajectory would be hinged on the movement in Oil prices and Global bond yields.

    Data Source: Bloomberg, RBI


    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.

  • February 14, 2018
    Quantum Alternative Investments Team

    Keeping up with seasonal trends, this January too was positive for gold. The fact that two big gold buyers, India and China, get involved during the period brings in the positive bias. India loads up in preparation of the ensuing wedding season and China readies for the Lunar New Year. From an economic perspective, gold’s rise since mid-December has coincided with the U.S. dollar’s free-fall that began just after the Fed raised interest rates for the fifth time since the rate-hike cycle began in December of 2015. However, stronger than expected jobs data accompanied by hawkish Fed rhetoric took some sheen off gold. All in all, gold managed a close at $1,345.15 an ounce clocking gains of 3.2% for the month.

    The Fed basically guaranteeing another rate-hike at the upcoming March meeting was unable to bring any meaningful gains in the dollar. This is likely because markets are currently pricing in the same three rate hikes this year that the Fed has forecast and expectations from a tighter monetary policy from the European Central Bank (ECB) adds the pressure on the dollar. While it may be the case that the ECB reduces its monthly asset purchases in the months ahead, the fact that the ECB President, Mario Draghi, recently made it clear that he does not expect ECB interest rates to rise this year which suggests that the dollar should not weaken too much further against the Euro.

    Although the U.S. government shutdown was in a way averted by another stopgap measure, it helped gold prices as the drama unfolded. It’s far from over yet. How the current administration, as well as the House and Senate, deal with funding the government will absolutely affect the financial markets. As much as we all hope for the real progress to occur, if past performance is any indication, it seems more likely that they will come to some sort of impasse or once again play ‘kick the can’. They are simply unable or unwilling to tackle the real issue: fiscal prudence. This could lead to more downside pressure in U.S. equities as well as the dollar.

    Outlook

    The Fed’s balance sheet reduction rises to $50 billion per month by October. The Fed’s dot-plot predicts three more rate hikes this year and the ECB has halved its QE program and is predicted to completely finish printing money by the end of this year. Exploding debt and the reversal of central bank support for bonds should cause rates to spike. The impact of lesser money will be felt over time by the markets until the euphoria on tax cut optimism, liquidity and higher asset prices will likely come to an end this year. The recent correction in risk assets seems to be an early indication of just that.

    For now, the Fed seems to be keen to use the euphoria in order to push the normalization of monetary policy. We don’t expect real rates to move up too much. After the December increase in rates, there would perhaps be another two hikes in 2018 at maximum. By contrast, the so-called dot-plot of individual policymakers shows that they envision three more next year. There is a material difference between reductions in liquidity infusion vis-à-vis withdrawing liquidity. The Fed’s balance sheet normalization would push rates higher and therefore impact the Fed’s resolve for rate-hike trajectory that they envision today. The Fed’s attempt to get ahead of its QE unwind may provide investors with a buying opportunity in gold before adversely impacting the market and economy.

    Should the current expansion fail to become the longest in history and the U.S. GDP growth indeed turn downward over the year, we believe the consequences could be grave. The knee-jerk reaction by the U.S. government and the Fed would definitely comprise renewed stimulus measures in order to stem the downfall, which implies a complete U-turn in monetary policy. Currently, financial markets are almost exclusively focused on the planned normalization of monetary policy. Almost no one seems to expect an impending recession or a return to loose monetary policy. Investors will do well to remember that, so far, the Fed has been behind the curve and only delivered when markets brought it on a silver platter. Since the normalization of monetary policy hasn't yet progressed sufficiently, renewed stimulus measures would probably shake market confidence in the efficacy and sustainability of the unconventional monetary experiments applied to date.

    The world continues to remain in state of 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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