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  • June 10, 2019
    Quantum Equity Team

    Month of May was volatile but ended on a good note for Indian equities. S&P BSE Sensex rose 1.88% based on total returns (including dividends). Mid cap and Small cap indices also had a decent run with appreciation of 1.43% and 1.7% respectively. Exit polls predicted a clear majority for BJP led NDA government. Market wished for continuity and positively greeted the news.

    In the first 5 months of 2019 so far S&P BSE Sensex has given 10.46% return. S&P BSE Midcap and S&P BSE Smallcap have been trailing behind with -2% and 1.27% increase respectively. Sectors such as banking, capital goods and real estate were among those that gained maximum during the month. Healthcare and metal were shunned by investors.

    Reports of price manipulation in the US and consequent regulatory action hurt pharmaceutical stocks. Trade dispute between US and China led to soft outlook for most industrial commodities including metals. Indian currency depreciated 0.19% during the month.

    Market Performance at a Glance
     Market Returns %*
     May 2019
    S&P BSE SENSEX **1.88%
    S&P BSE MID CAP **1.43%
    S&P BSE SMALL CAP**1.7%
    BEST PERFORMER SECTORSBanking, Capital Goods and Real Estate
    LAGGARD SECTORSHealthcare and Metal
    * On Total Return Basis
    ** Source-Bloomberg
    Past Performance may or may not be sustained in future.

    FIIs turned positive on India with net purchase of stocks worth USD 1.4 billion. In 5 months so far, FIIs have been buyers to the tune of USD 11.2 billion. Domestic institutions (DIIs) were buyers of USD 750 million worth of stocks in May. Of this, majority USD 730 million was from MF players and insurers contributed the rest. Till date, DIIs had net outflows of USD 1.6 billion from stocks in 2019.

    Month gone by saw an escalation in Sino-US trade disputes and caught the world markets unaware. US imposed higher tariffs on Chinese imports worth USD 200 million. This was after the trade talks between the two countries failed as China reneged on some clauses that it agreed earlier. The response from Chinese side was to increase tariff on USD 70 billion worth US items.

    Matters have deteriorated further with Chinese equipment, specially telecom related getting banned by US Government for any domestic use. The measures and counter-measures are likely to slow down global trade and growth. Demand for many commodities including crude could be affected and their prices have taken a knock.

    Matters have deteriorated further with Chinese equipment, specially telecom related getting banned by US Government for any domestic use. The measures and counter-measures are likely to slow down global trade and growth. Demand for many commodities including crude could be affected and their prices have taken a knock.

    There are signals that US Fed could reduce interest rates further, which had started to go up in last 2 years. Fears of recession due to trade conflict is reason for possible rate cut in US. Euro zone has also increased liquidity pushing interest rates closer to zero or negative. Such movements have impact on emerging markets such as India. Higher interest rates could lead to flight of capital whereas lower rates cause deluge and increase price of most assets.

    Among other events, Brexit deal of Prime Minister Theresa May was rejected after multiple events. She has resigned from her post and a new leader is being looked forward to. This has also increased political and financial uncertainty.

    Among domestic news, BJP emerged winner after Lok Sabha elections. It bettered its victory margin of 2014 with 303 seats. However, the economy isn’t in a good shape. GDP has grown at 5.8% in last quarter of 2019 fiscal, a considerable slowdown. Problem faced by NBFCs which started in September still continues to linger on. There has been a slowdown in private consumption of most items including cars and two wheelers.

    Capital expenditure from private sector is also not showing signs of pick up. Government may have to take steps to increase investment in infrastructure and also help the rural sector with handouts which have been facing problems. While the fiscal deficit may go up, these steps could stimulate the slowing economy.

    RBI has cut interest rates by 0.25% early June as was expected. One can expect further reduction as GDP momentum has slackened and also inflation remains under control. Monsoons have been delayed by some days. This is crucial for the country as large part of agriculture sowing depends on rains. International crude oil prices have declined from $75 to $60, a relief for the country as it depends heavily on imports.

    Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Economy is dependent on domestic consumption and thus insulated from any global problems. Events like global trade wars have very limited impact on India. Investors can expect good return from equities over a long period in future. However, valuations have run up recently.

    Data Source: Bloomberg


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article / video 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.

  • June 12, 2019
    Quantum Fixed Income Team

    The monetary policy committee of the RBI voted 6-0 to cut the policy repo rate by 25 bps from 6.00% to 5.75%. They also changed the policy stance from “Neutral” to “Accommodative”; thus keeping the door open for further reduction in the repo rate.

    In the post policy press briefing the RBI Governor raised serious concerns about growth outlook though it was not backed by any significant downward revision in their GDP growth forecast. The RBI expects GDP to grow by 7.0% in 2019-20 against the earlier projection of 7.2%. With this forecast the MPC may not need to cut the Repo rate by a large amount to revive growth back up to potential.

    The RBI has now already cut the policy rates thrice from 6.5% to 5.75% within four months. Now the focus should be on maintaining surplus liquidity in the banking system so that transmission of these cuts onto lower lending rates happens at faster pace.

    The RBI, in past, has preferred Open Market Operations (OMO) and recently introduced long term FX swaps to infuse durable liquidity in the banking system. Although they can continue to use these and long term repos for liquidity infusing, we believe cutting Cash Reserve Ratio (CRR) for banks can have a better impact in terms of transmission. Now with LCR (Liquidity Coverage Ratio) in place along with the SLR (Statutory Liquidity Ratio), the RBI should take a fresh look at the CRR requirements especially for its virtue of having a lasting effect on the system liquidity and banks’ financial position.

    For the bond markets this was a good policy particularly with the change in stance to accommodative opening up space for further rally in the bond prices (fall in bond yields). Bond markets have already rallied a great deal in last one month with the 10 year government bond yield down from 7.4% in April to near 6.9% now. However, at current levels it still looks attractively valued as more rate cuts get priced in.

    Bond funds with longer maturity profile may benefit from the rate cuts though liquid fund returns will likely fall with the cut in Repo Rates and the desire to keep surplus liquidity. Dynamic Bond Funds, which allow the fund manager flexibility to change the portfolio positioning depending on the emerging situation is a better alternative for the investors who wish to allocate to bond funds and can have a holding period of 2-3 years.

    Investors with low risk appetite should stick to Liquid Funds to avoid any sharp volatility in their portfolio value. However, while choosing such funds also one should be aware of the credit risk and prefer funds which take low credit and liquidity risks.

    The RBI disappointed the markets but was prudent in not announcing any big bang liquidity measures immediately which was seen in the sharp fall in the equity markets. However, they set up a working group to review the existing liquidity framework and they have also assured the market of timely response to the NBFC issue.

    We believe the credit crunch in the NBFC space is mainly due to Investors’ trust deficit over the financial position and asset quality of some non-bank lenders. Thus mere liquidity infusion may not be able to resolve the issue.

    Investors should also note that the credit crisis which began in the bond markets in September 2018 is not over yet and investors should remain cautious and should always choose debt and liquid funds which priorities safety and liquidity over returns in the current times.

    Data Source: Bloomberg, RBI


    Product Labeling
    Name of the SchemeThis product is suitable for investors who are seeking*Riskometer
    Quantum Dynamic Bond Fund

    (An Open Ended Dynamic Debt Scheme Investing Across Duration)
    • Regular income over short to medium term and capital appreciation

    • Investment in Debt / Money Market Instruments / Government Securities
    Quantum Long Term Equity Fund
    Investors understand that their principal will be at Moderate Risk
    Quantum Liquid Fund

    (An Open Ended Liquid Scheme)
    • Income over the short term

    • Investments in debt / money market instruments
    Quantum Long Term Equity Fund
    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 / video 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.

  • June 10, 2019
    Quantum Alternative Investments Team

    Gold is rediscovering its “sweet spot” as escalating concerns about the U.S.-China trade standoff, losses in equities and concerns about slowing growth combine to lift the yellow metal from doldrums. The amped up trade tensions helped gold breakout which was earlier stuck between U.S. dollar vigor and looming market uncertainties. With trade ructions escalating to Mexico, it makes it distinctly clear that U.S. can use its supremacy to weaponize trade on a whim. As impact of trade wars impedes economic activity, it could force the Fed to cut rates and pump in liquidity to support the ailing economy. This would undermine the last support for the dollar and act as a catalyst for gold. Gold saw its first monthly gain in May, breaking a streak of three straight months of losses. Gold prices ended the month at $1,305.5 an ounce, an increase of +1.7%.

    The U.S.-China trade war continues to worsen. Trade negotiations seemed to have lost ground and moved farther away from a resolution. As a result, fresh rounds of retaliatory tariffs have everyone concerned on its impact on growth in an already slowing world. New tariffs on Mexico now extend a different dimension of immigration issue as opposed to be an unfair trade issue, exemplifying how U.S. can exploit its supremacy. It looks more likely that the trade wars will be long, messy and expensive for the world.

    The U.S. economy is showing some weakness despite predictions of growth. American factory data has been disappointing, sales of new U.S. homes cooled in April from an 11-year high and pending home sales in April unexpectedly dropped, adding to signs the housing market is struggling to regain momentum. There is further risk of deterioration and trade war could only exacerbate the situation. Bloomberg economists Dan Hansen and Tom Orlik said, “If tariffs expand to cover all U.S.-China trade, and markets slump in response, global GDP will take a $600 billion hit in 2021, the year of peak impact.” This is just a direct impact; the second round order would be significant as the decline in equity market would undermine the wealth effect and thereby a headwind to consumption and investment, compounding the fallout.

    Outlook

    Gold is proving to be a major beneficiary of the U.S.-China trade war. Escalating trade tensions between the U.S. and China damped the outlook for growth. China’s retaliatory tariffs have fueled bearish sentiment on the global economy. There are growing signals that an economic slowdown is imminent, with the outlook for China’s manufacturing sector deteriorating more than expected. Should the pressures of the trade war hurt U.S. economic growth, it may prompt the Federal Reserve to reduce interest rates thereby undercutting the dollar. Vice Chairman Richard Clarida said “The Federal Reserve is prepared to ease if it sees mounting risks to the expansion”. Trade war could be a significant catalyst for Gold if it leads to Fed easing in the immediate future, as well as higher inflation expectations.

    According to a monthly poll of consumers, expected inflation three years ahead dropped to 2.7 percent in April, which is the lowest reading since August 2017. A similar University of Michigan survey measure of expected inflation in five to 10 years also fell in April to a half-century low. However, the aggressive tariffs if maintained for long can change the inflation dynamics significantly. The U.S. is increasingly slipping into an inflationary environment with tariffs driving up prices. The cost of tariffs has fallen entirely on U.S. businesses which will sooner or later be passed on to consumers. The US could soon end up staring at a stagflation environment where growth will continue declining and inflation moving higher. Fed will be biased towards supporting growth and therefore cut rates which will mean that real interest rates will be on a decline. This scenario will be extremely bullish for gold.

    The U.S. yield curve has inverted and industrial production has weakened further, China’s economy is slowing dramatically and in Europe even the likes of Germany are stagnating. Our world has clearly moved from global synchronization to a global slowdown. If the Fed takes a u-turn in policy as a response to slowing growth or falling asset prices by beginning to cut rates or adopt further unconventional measures like QE, it will be perceived by the markets that the central banks are caught in a trap and will not be able to normalize monetary policy. This will be a big boost for gold prices. It is important to note the academic discussions at the Fed are in agreement of further unorthodox monetary policy which implies use of more unconventional tools like monetary easing (money printing) and even negative interest rates. This significantly increases the probability of the Fed to move quickly towards lowering rates to the zero bound and other unconventional tools used on first signs of recession in the United States. Such ill-conceived policy making can be another positive trigger for gold.

    Central banks have tried to get out of this low-interest-rate trap but they aren’t able to. The market is addicted to cheap liquidity and doesn’t look like that is going to change anytime soon. The world continues to remain in state of great disequilibrium, both with respect to the global economy and geopolitics as well. Given the macroeconomic picture, gold will be a useful portfolio diversification tool and thereby helping you to reduce overall portfolio risk.

    Source: Bloomberg, World Gold Council


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article / video 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.

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