Equity Monthly View for October 2023

The S&P BSE Sensex declined by 2.9% in the month of October. S&P BSE Midcap Index & S&P BSE Small cap Index declined by 3.4% and 1.7% respectively. Non-institutional flows have likely triggered a reversal in mid and small cap indices.

Market across globe were muted following the geopolitical crises and higher bond yields. Fed maintained status quo during the recently held policy meet despite hawkish commentary. As data points suggest a resilient US Economy, the US 10Y Treasury yield breached 5% during the month. The probability of global interest rates remaining high in the medium term appears high. As we have reiterated in the past, in such environment, when cost of capital is likely to remain higher than past few years, “value” as a style is likely to do well.

Higher bond yields and ongoing geopolitical tension resulted in an outflow of USD 2.95 bn from FPIs (Foreign Portfolio Investors). Domestic Investors were buyers to the tune of ~USD 1.7 bn. Positive equity flows into mutual funds is likely to buffer the impact of potential outflows in FPI category.

Quantum Long Term Equity Value Fund (QLTEVF) saw a decline of 2.6% in its NAV in the month of October 2023; Tier-I benchmark S&P BSE 500 and Tier-II Benchmark S&P BSE 200 declined by 2.9% each. Our holdings in Financials, Healthcare and consumer discretionary contributed to the relative outperformance. Relative outperformance in financial stocks were supported by a broking company and a general insurance name. Relative outperformance in consumer discretionary sector was contributed by an export focused auto company that witnessed margin benefits due to commodity tailwinds along with recovery in few export markets. Our overweight position in IT negatively contributed to the relative performance. While deal wins continue to be healthy, markets are worried about the near-term headwinds due to tough global macro. Though client spends could be deferred in the near term, it is bound to revive in the medium term as prolonged deferral in IT spends is bound to impact the business performance of end clients. Banking names reported muted performance during the month. Though credit growth remains healthy, most banking names have reported a decline in margins as liabilities are repriced to the prevailing higher rates.

Earnings are broadly in-line:

The recent quarterly earnings are broadly in-line with our expectation. While revenue growth moderated in most sectors, profitability improved as input costs moderated. Banks, Auto and Pharma results corroborate our positive view on their business cycle. Credit cycle continues to be favourable for Banks. With early signs of private capex revival, credit growth is likely to remain reasonable in the medium term. Most banks are seeing a revival in credit demand from MSME and mid-corporate segments.

Moderation in input prices, drug shortage in US market along with a reasonable pipeline of products helped Pharma companies. Consumer staple names are seeing a moderation in volume growth especially in the rural segment. IT service firms continue to see challenging demand environment as clients continue to be cautious on spends. Deal wins continue to remain healthy pointing to a revival in demand prospects in the medium term.

Festive demand trends are encouraging in most sectors. Auto volumes have reported healthy double-digit growth. Leading credit card companies have indicated supportive trends in card spends during the recent month. Real estate sales in key cities like Mumbai reported record sales during the recent month. Few durable companies are witnessing mixed trends. The collective trend doesn’t indicate a need for caution in earnings cycle at this point.

Near term risks in our view are overall inflation trajectory following weak monsoon, global slowdown, and political uncertainty as the country heads into elections next year. While there could be uncertainty emerging globally or in India; investors should not be unnerved by the near-term volatility and focus on allocating prudently to equities based on their financial goals. Investors can allocate to equities in a staggered manner.

Data source: Bloomberg

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer of scheme	Riskometer of Tier I Benchmark	Riskometer of Tier II scheme
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy. Primary Benchmark: S&P BSE 500 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

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Above article is authored by Quantum.

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