Equity Monthly View for February 2023

Posted On Wednesday, Mar 08, 2023


The S&P BSE SENSEX saw a decline of -0.8% on a total return basis in the month of February 2023 while S&P BSE Midcap Index & S&P BSE Small cap Index declined by -1.8% and -2.9% respectively. All sectoral indices barring capital goods clocked negative returns during the month. Corporate results indicated a slowdown in consumption spending, especially in the value segment.

Strong US economic indicators hint at the possibility of higher rates for longer, triggering a decline in global markets. S&P 500 declined by 2.4% during the month. China stocks were dragged down by weak domestic demand and muted exports due to the global slowdown. MSCI EM registered a decline of -6.5%.

Domestic macro indicators have moderated over the recent month. GDP growth slowed to 4.4% in Q3-FY23, partly due to a high base. Weak global demand led to a slowdown in exports. CPI inflation in Jan 2023 rose to 6.5% due to costly food and fuel prices. Though recent corporate results indicate a mixed picture of domestic consumption, there are early signs of rural recovery. Buoyant tax collections, credit demand, government capex, and a potential revival in private capex augurs well for the cyclical economic uptick.

In terms of flows for the month, FPI selling has reduced over the month. FPIs were sellers in Indian markets to the tune of USD 647 mn. Domestic institutional investors were buyers with purchases worth USD 2.3 bn. Trends seem to be in line with what we witnessed in the calendar year 2022, where FPIs have recorded a net outflow of USD 16.5 bn while DIIs recorded a net inflow of USD 35.8 bn.

Quantum Long Term Equity Value Fund (QLTEVF) saw a decline of -2.8 % in its NAV in the month of February 2023. This compares to a decline of -2.7% and -2.8% each in its Tier I benchmark - S&P BSE 500 and Tier II Benchmark - S&P BSE 200. The majority of the holdings were in red following market trends. Gas based utility holdings gained during the month as input prices started normalising. Banks have relatively performed better as the recent results corroborated the persistence of an ongoing favourable cycle. Cash in the scheme stood at approximately 4.0% at the end of the month. The portfolio is valued at 11.4x consensus earnings vs. the S&P BSE Sensex valuations of 15.9x based on FY25E consensus earnings; thus, displaying value characteristics.

While India’s strong fundamentals would ensure reasonable long-term returns, managing risk is equally important to ensure a good investment experience over the long term. Unlike the popular perception, higher risk needn’t always result in superior returns. Historic risk measures like standard deviation mayn’t capture the fund’s preparedness to handle adverse scenarios in the future.

In QLTEVF/QTSF (Tax Saving Fund), risk management is ensured using three guard rails:

a. The margin of safety: We attempt to buy stocks for less than their worth. The risk of low returns needn’t necessarily emanate from weak fundamentals. Overpaying for a business can lead to losses despite the lucrativeness of the business model. Buying at a discount ensures a lower downside even when the company doesn’t perform on expected lines.

b. Liquidity: During times of weak flows, liquidating stocks with thin liquidity mayn’t result in realizing their recently displayed prices. The act of buying and selling can have an impact on stock prices. We ensure to buy into stocks with a minimum average daily turnover of $ 1 mn.

A liquid strategy also ensures a larger capacity for the fund and its ability to sustain the track record at larger AUMs.

c. Corporate Governance: Quantum as a group has established the governance filter right from its inception in 1996. To ensure shareholders benefit from the prospects of companies we own, founders of businesses must treat us fairly as minority investors.

Some of the popular signs of weak governance are:

• Companies that attempt to consistently grow at a faster pace than supported by organic cash flows. When the funding tap dries, such companies would need to raise capital at adverse valuations leading to destruction in shareholder wealth

• A large quantum of related party transactions at unfair pricing terms

• Aggressive accounting practices to portray a favorable situation than the actual reality

• Expanding working capital cycle which is not in line with growth in revenue

• Merger/Divestment of group companies at unfavorable valuation disproportionately favoring the promoters.

In most cases, the historic behaviour of promoter groups gives an indication of the potential behaviour.

Once any of the above risks materialise, the company can trade at sub-par valuations for a prolonged period. It is important to keep a watch on the risk management framework of the fund house to ensure a good investment experience.

The key near-term monitorable for the Indian markets are private capex trends, rural recovery, inflation trajectory, and subsequent central bank actions. We remain constructive on Indian equities with a long-term perspective.

Data source: Bloomberg

Product Labeling
Name of the SchemeThis product is suitable for investors who are seeking*Risk-o-meter of SchemeRiskometer of Tier I Benchmark and Tier II Benchmark

Quantum Long Term Equity Value Fund

(An Open Ended Equity Scheme following a Value Investment Strategy)

Tier I Benchmark:

Tier II Benchmark:

• 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

Quantum Tax Saving Fund

(An Open Ended Equity Linked Saving Scheme with a Statutory Lock in of 3 years and Tax Benefit.)

Tier I Benchmark:

Tier II Benchmark:

• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index and to save tax u/s 80 C of the Income Tax Act. Investments in this product are subject to lock in period of 3 years.

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.

Please visit – www.QuantumAMC.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.

Above article is authored by Quantum.

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