Equity monthly view for November 2021

Posted On Thursday, Dec 09, 2021


S&P BSE SENSEX fell by -3.78% on a total return basis in the month of November 2021. It has underperformed S&P 500 (-0.69%) and Dow Jones Industrial Average Index (-3.5%). On a YTD basis, S&P BSE SENSEX has underperformed S&P500 by 2.48%.

The broader market has outperformed the S&P BSE Sensex this month. While S&P BSE Midcap Index has declined by -2.1% the S&P BSE Small-cap Index was flat. With this month’s performance, the mid-cap & the small-cap indices have given the return of 39.1% & 55.5% respectively on a YTD basis. Health Care, IT & power sectors stood out giving positive returns in an otherwise declining market.

Quantum Long Term Equity Value Fund (QLTEVF) saw a -4.62% decline in its NAV in November 2021. This compares to a -3.2% decline in its benchmark S&P BSE 200. Cash in the scheme stood at approximately 4.4% at the end of the month. The portfolio is valued at 12.9x FY24E earnings vs the S&P BSE Sensex valuations of 18.8x FY24E earnings.* QLTEVF’s portfolio positioning remains tilted towards cyclicals as they benefit the most from a broad-based economic recovery.

FPI outflows continue due to taper tantrums

Nov-21 has seen FPI outflows of US$ 790 mn vs outflows of US$ 1,801 mn in the month of October-21. On a YTD basis, FPI inflows stand at US$ 5,219 mn. India’s relative outperformance over the other emerging markets has possibly triggered reallocation calls from EM dedicated hedge-funds. US Federal Reserve’s imminent tapering & hawkish commentary on inflation has also been the catalyst for near term FII outflows. However, given the improving macro-outlook of India’s economy, inflows should resume after a pause. DIIs have remained net buyers for November 2021 to the tune of US$ 2,119 mn.

New Covid-19 Variant sparks fear of a third wave

Just as we start to think, that Covid-19 is a thing of the past, a new variant erupts to surprise us. In February 2021 it was ‘Delta’, this time it is ‘Omicron’ (emerging from South Africa). There is much uncertainty around the new variant, whether existing vaccines will work on it. Or is it more infectious than the previous variants? It is too early to assess the social & economic impact of the new variant in the next few months but what is certain is more uncertainty. The following chart is the comparison between South Africa & India in terms of daily new cases (per million) & vaccination coverage. The sharp spike in cases in South Africa recently is entirely driven by the new variant. In terms of vaccination coverage, India is in a much more comfortable situation but the efficacy of vaccines on the new variant still needs to be proven.

Daily New Confirmed Cases (per million)Share of People Vaccinated
Bloomberg Energy Sub IndexBloomberg Energy Sub Index

Source: ourworldindata.org Data as on December 6th, 2021

‘We can retire the term ‘Transitory Inflation’’. This recent statement by U.S Federal Reserve hastens up the road map for a reversal of the easy liquidity environment, in place for the last eighteen months. This is perhaps the first time in close to a decade when the U.F Federal Reserve has acknowledged inflation as a concern. This will have a bearing on equities globally. In India too, RBI will have to take cognizance of high inflation and move interest rates accordingly.

As in the case of bonds, where longest maturity bonds are the most sensitive to interest rate changes in equities too stocks with high valuations are the most sensitive to increase in the cost of capital. Investors should steer clear from pockets of high valuation both in primary & secondary markets. Some of the recently listed new-age companies (while they have a robust business case & tremendous opportunity size) will find it difficult to fund their growth through cash burns in an environment where the cost of capital is increasing. Investors should look at active funds with portfolio P/E multiples ideally more attractively valued than the benchmark but offering a very similar or higher growth profile. Lower P/E reduces the drawdown risk, but a similar growth outlook indicates the portfolio’s ability to capture the upside sufficiently.

Headlines of a quicker than expected Fed tapering & new Covid-19 variant may have coincided but they are mutually exclusive events from a macroeconomic perspective. Consider this, if Omicron emerges as highly virulent it will lead to lower mobility & lockdowns, impacting the demand of goods & services & cooling off the inflation. On the other hand, if the variant is mild then the economic activity will not get impacted. In either case, markets should stabilize after initial bouts of volatility. Investors should not be unnerved by the near-term correction & steadily move towards their optimum equity allocation as per the long-term financial goals through systematic investment plans. Any sharp correction due to near-term headwinds can offer additional valuation comfort and should be used to allocate more to equities with a long-term perspective.

*Consensus view/ Bloomberg

Data source: NSDL

Product Labeling
Name of the SchemeThis product is suitable for investors who are seeking*Risk-o-meter of SchemeRisk-o-meter of Benchmark
Quantum Long Term Equity Value Fund

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

Primary Benchmark:
NIFTY500 Value 50 TRI
• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index.
Quantum Long Term Equity Value Fund
Investors understand that their principal will be at Very High Risk
Quantum Long Term Equity Value Fund

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
The Risk Level of the Scheme in scheme Risk O Meter is basis it's portfolio as on November 30, 2021.
The Risk Level of the Benchmark Index in the Risk O Meter is basis it's constituents as on November 30, 2021.

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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