Equity Monthly View for February 2024

S&P BSE Sensex advanced by 1.2% in the month of February. S&P BSE Midcap Index advanced by 1.7% & S&P BSE Small cap Index declined by 1%. The relative valuation excess has led to some profit booking in small caps. Equities across the globe did well in February. S&P 500 was up 5.3%, MSCI Emerging Markets Index was up by 4.8% driven by gains in China.

The recently published GDP growth rate of 8.4% in Q3, FY24 was supported by double digit expansion in manufacturing sector. The higher GDP growth rate was partly supported by downward base revision. Consumption expenditure growth was subdued corroborating the overall slowdown of consumption in the mass market segment. Most macro indicators including inflation and GST collection are showing encouraging signs. In terms of flows, FIIs were buyers to the tune of USD 186 million in the month of February and DIIs were net buyers to the tune of $3.1bn. High global interest rates and limited valuation comfort could constrain a meaningful improvement in foreign flows.

Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 2.3% in its NAV in the month of February 2024; Tier-I benchmark S&P BSE 500 TRI and Tier-II Benchmark S&P BSE 200 TRI increased by 1.7% and 2.1% respectively. Our portfolio stocks within Financials and Healthcare majorly contributed to the outperformance. Consumer Discretionary (Auto) and Energy were the key drags.

During the month, the fund trimmed positions in segments like consumer discretionary, healthcare where valuations have reached the fair zone. We increased our position in a life insurance company and consumer durable company where valuations are favourable due to transient near-term headwinds. Cash level stood at 7.9% at the end of the month.

The key watch points in the near-term are interest rate trajectory, private capex trends and consumption in mass market. Favourable inflation trend globally and domestically can trigger central banks to initiate rate cuts over the course of 2024. As capacity utilisation in manufacturing sector has surpassed the optimal level of 75%, there is a good chance for private capex revival in the medium term. Moderation in inflation and a reasonable monsoon can support consumption in mass market segment.

The large cap cohort offer superior valuation comfort compared to mid and small caps. In case the recent market rally has skewed the allocation towards small and mid-caps, investors can consider rebalancing their portfolios. QLTEVF portfolio continues to display value characteristics at PE valuation of 15.7x Vs 18.3x of BSE-30, based on FY26E. Weighted EPS CAGR over the next two years is similar to BSE-30 index at 14.1% based on consensus estimates. In the current environment of near full valuation across multiple segments, QLTEVF portfolio offers relative valuation comfort. Investors may consider making incremental allocation in a staggered manner to benefit from the ongoing earnings upcycle.

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: S&P BSE 500 TRI Tier II Benchmark: S&P BSE 200 TRI	• 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.

Above article is authored by Quantum.

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