Equity Monthly View for April 2023

Posted On Monday, May 08, 2023


The S&P BSE Sensex rose by 3.6% in the month of April, supported by stable macros and corporate earnings. S&P BSE Midcap Index & S&P BSE Small cap Index increased by 6.0% and 7.3% respectively. A rate hike pause by RBI triggered a rally in realty and auto stocks. Barring IT and consumer durables, all sectoral indices outperformed Sensex.

Global indices had mixed performance during the month. S&P 500 advanced by 1.6%, broader MSCI EM index declined by 1.1% and MSCI World Index advanced by 1.8%. Rally in S&P 500 was driven by signs of moderation in inflation and expectation of Fed rate near the peak. The scale of current US banking crisis doesn’t appear to be as broad based like past crisis. The fear of contagion effects could prevent Fed from further hikes. Decline in EM index is driven by weaker than expected activity levels in China and re-emergence of China-Taiwan conflicts.

In terms of flows for the month, FPIs bought USD 1.4bn. Domestic institutional investors were buyers to the tune of USD 1.7 bn. Amid global slowdown, India’s relatively stable macro environment along with low probability of further rate hikes could keep the positive momentum in foreign flows.

Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 3.9 % in its NAV in the month of April 2023. Tier-I benchmark S&P BSE 500 and Tier-II Benchmark S&P BSE 200 advanced by 4.6% and 4.4% respectively. Under allocation to Consumer Staples, Industrials and Materials were the key contributors to the underperformance for the month. Cash in the scheme stood at approximately 4.95% at the end of the month. The portfolio is valued at 12.0x consensus earnings vs. the S&P BSE Sensex valuations of 17.0x based on FY25E consensus earnings; thus, displaying value characteristics.

Corporate Earnings largely meet expectations:

The broader rally in Indian market was triggered by a reasonably stable result season barring select sectors like IT and Consumer Durables and return of Foreign investors as we are likely near the peak interest rates. Overall corporate results were on expected lines. The cyclical economic recovery, which commenced post covid-19, was delayed due to rapid rate hikes and high inflation over the past few quarters. Amid a likely global slowdown, inflation and interest rates are likely to moderate from current levels and provide more legs to the economic recovery. The ongoing result season has fared reasonably well across sectors. Strong credit growth in banks, decent volume growth in cement sector, volume uptick in autos and stable order inflow in capital goods sector all point to persistence of economic momentum. Domestic macro indicators like PMI indices, record GST collection and a moderation in inflation index corroborate the same.

Long Term structural growth story in IT Sector remains intact:

The fund has an over-weight position in the IT sector. IT sector has come under pressure following fears of slower tech spend growth amid the banking crisis in US. Indian IT companies’ high share of revenue from BFSI at ~30% makes the market wary. The intensity of current crisis looks mild compared to past down cycles. Indian IT’s aggregate revenue is conservatively estimated at ~19.9% of global tech spends (11.1% share in CY12), leaving ample scope for long term growth. A large bench of fresh recruits and ease of supply side pressures would help IT firms to improve profitability in the near term. Unlike CY17-19 where growth rates materially slowed down, there is no imminent risk of a large-scale technology transition. Given the long-term structural story, the growth rates over the next 4-5 years are likely to be reasonable. Most companies have improved the capital allocation policy over the past few years which calls for a higher steady state valuation multiple compared to historic average. The embedded growth rates in stock prices of Tier 1 IT names are at a reasonable discount to long term industry growth rates which makes the valuation attractive.

A potential pause in global interest rate hikes, moderation in inflation and persistence of corporate earnings upcycle makes us positive on Indian equities. Investors with a long-term horizon can utilize the current opportunity to build their equity allocation in a staggered manner.

Data source: Bloomberg

Product Labeling
Name of the SchemeThis product is suitable for investors who are seeking*Risk-o-meter of Scheme

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 S&P 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.

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.

Above article is authored by Quantum.

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