Equity monthly view for February 2021

March 05, 2021

S&P BSE Sensex increased by 6.2% on a total return basis in the month of February. On trailing twelve-month basis, the index has returned 29.9%. S&P BSE Sensex performance was much better than developed market indices such as S&P 500, which increased by 4.2% during the month. It was also better than the MSCI Emerging Market Index which rose by 2.2% during the month.

S&P BSE Mid-cap and S&P BSE Small-cap indices outperformed the S&P BSE Sensex in February; with the S&P BSE Midcap Index rising by 10.7% and the S&P BSE Small-cap Index rising 12.2%. Cyclicals did lot better in February with Power, Metals, Real Estate sector seeing a sharp increase, while technology and consumer staples stocks underperformed during the month.

GDP moves out of recession

After two quarters of sharply negative growth, India’s GDP reported a marginally positive 0.4% growth in Q3FY21. GDP recovery continues to be led by Government spending, while private capex remains weak. High frequency indicators are also indicating economic activity is back to normal. Surprisingly expectations were slightly higher than the reported GDP, suggesting there is still some pain in the system especially in the unorganised sector. Feedback from corporate India remains strong and most companies have reported sharp jump in profitability in Q3FY21, driven by demand normalisation and cost efficiencies. Unless there is a significant increase in new Covid cases, its highly likely that the worst of the covid crisis is behind us. With Government spending expected to remain strong and liquidity to remain easy, GDP growth could surprise on the upside in coming quarters.

Flows Accelerate

FII’s continued to remain large net buyers of Indian equities, buying $3.5 bn worth in the month of February. FII’s have purchased $5.4 bln worth of equity stocks for this year till date, this on the back of US$ 23 bn of net buying in CY2020. DII’s have remained net sellers in February selling $2.3 bln worth of equities. Indian rupee marginally depreciated by 0.73% during the month. India will be reporting a very strong GDP growth in FY22 on a low base, making the India story very compelling for foreign investors and its likely FII flows will remain strong for the CY21.

Rising Yields a worry

Bond markets have started showing nervousness about sharply rising commodity prices especially crude. The equity rally which started in April 2020 has broad underlying assumptions of easy liquidity plus large fiscal stimulus without significant uptick in inflation. Rising yields may queer the pitch and trigger a selloff in global equities. We continue to believe Central bankers will strive to keep yields low and continue to nurture the nascent recovery and drive employment in their respective economies. As of now we do not believe equities will sell off significantly fearing rising yields.

Domestically we have seen increase in covid cases in key states of Maharashtra and Kerala. The numbers still remain far below peak but remains a cause for concern. India so far has been lucky not to witness a second wave. Equity markets are factoring a normalisation of economic activity, any substantial increase in new Covid cases will derail the recovery and may trigger a sharp sell off

QLTEVF saw a 6.9% appreciation in its NAV in the month of February. This compares to 7.5% appreciation in its benchmark S&P BSE 200. Marginal underperformance for the month was driven by holdings in IT, Pharma and Auto. Cash in the scheme stood at approximately 6% at the end of February. Market valuations remain elevated and are factoring a robust recovery. Earning reported by corporate India have so far surprised positively and have led to slight upgrades. Rising earnings and excess liquidity is expected to keep valuations high. Any risks to the economic recovery can result in sharp correction. We remain constructive on Indian equities with longer-term view & suggest a neutral weight. Given the sharp run-up, we believe any fresh allocation toward equities should be staggered or through an SIP route.

Source: Bloomberg

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer
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.
The Risk Level of the Scheme in the Risk-o-Meter is based on the portfolio of the scheme as on February 28, 2021.

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