Equity monthly view for September 2021

Posted On Friday, Oct 08, 2021


S&P BSE SENSEX increased by 2.7% on a total return basis in the month of September 2021. It has had a large outperformance vs. its developed market peers such as S&P 500 (-4.6%) & Dow Jones Industrial Average Index (-4.1%).

After an aberration in August 2021, the broader market has again outperformed the S&P BSE Sensex this month. The S&P BSE Midcap Index appreciated by 6.0% and the S&P BSE Smallcap Index rose by 4.4%. With this month’s performance, the Midcap & the Smallcap index have given the return of 41.9% & 56.2% respectively on a YTD basis. The Real Estate sector stood out in September 2021 with a move of 33.1% followed by telecom at 11.1%.

Quantum Long Term Equity Value Fund saw a 1.18% appreciation in its NAV in the month of September 2021. This compares to a 3.23% appreciation in its benchmark S&P BSE 200. Cash in the scheme stood at approximately 8.3% at the end of the month. Some of the sectors like IT & Materials, where the fund has significant exposure generated lesser return than the benchmark, resulting in underperformance of the fund this month. Sharp up move in Reliance Industries (+11%) also impacted the relative performance. QLTEVF portfolio is tilted towards cyclical names like large banks, specialized NBFC, Automobiles, PSUs & Tech (global cyclical) & materials. In an economic recovery, cyclicals tend to see the highest-earning upgrades.

Festive demand will be critical

Recovery in the rainfall in September to near normal level (from -9% of long-term average at end-Aug’21 to -2% as of 27th September 2021), consistent low infection rate (less than 35,000 daily) & improving vaccination coverage (17% of the population is fully vaccinated) has increased the hopes for strong consumer demand in the festive season. However, supply chain issues like semiconductor chip shortages (a critical input in automobiles & electronic goods), high freight costs & unavailability of shipping containers are something companies must overcome to reap the benefits of a plausible strong festive demand.

Strong domestic flows balance the risk of possible FPI outflows due to taper tantrums

September-21 has seen a recovery in FPI flows to US$ 1,792 mn vs US$ 284 mn in August -21. On a YTD basis, FPI inflows stand at US$ 8,828 bn. US Federal Reserve’s imminent tapering is clearly the most significant risk to capital flows in the near term. However, in the medium & long term, India’s nominal GDP growth will look better than the western world. This makes it a sought-after destination for yield & growth-seeking long term global investors. The conclusion being, strong FII inflows can continue after a brief pause. Domestic institutions are again seeing positive flows in the last few months from retail investors, thus mutual funds have remained net buyers for all the months of the current financial year barring June 2021. In September 2021, mutual funds have bought US$ 642 mn worth of equities.

Disruptions in global energy balance can stoke domestic inflation

Imports as a % of India’s Domestic Demand (Table 1)Bloomberg Energy Sub Index (Table 2)
Crude Oil81%Bloomberg Energy Sub Index
Natural Gas45%

Source: Bloomberg, www.ibef.org

The month of September has witnessed energy shortages in China & Europe. It has resulted in a spike in global energy prices (Table 2). India is heavily dependent on energy imports (Table1) for its domestic needs. If higher prices for these imports continue it will seep into domestic inflation via higher production & freight costs for goods & services. After a spike in base metal & food prices as witnessed in the past 6-12 months, higher energy prices will push RBI to increase the rates sooner than later. However, if the interest rate hike happens after the economy has found its feet & is done in a calibrated fashion (it will be dependent on inflation data), it should not spook the markets beyond few days of knee jerk reaction.

Bloomberg Energy Sub Index

Data Source: Bloomberg, data as on September 2021

Past Performance may or may not be sustained in future

After the recent rally, the benchmark indices appear expensive on a PER (price/earnings ratio) basis. However, markets are heterogeneous. Not everything is cheap or expensive at the same time (barring times of severe global dislocation like October 2008 or March 2020). Though stocks with valuation comfort are not as easily available as was the case in March-April 2020, there are pockets of value in the broader market. Some of the financials are very well capitalized and have more than enough provisions to tide over the possible NPAs accretion due to the second wave. They have a history of strong underwriting abilities, have a decent low-cost liability franchise and are still offering decent upsides. Some of the well managed consumer discretionary names in the auto sector with a strong balance sheet & attractive return ratios also are available at good valuations. Some companies in IT & Pharma are poised to benefit from improving global economic recovery. They offer a ‘good business & attractive valuation’ combination.

Existing and new investors should not be overwhelmed by index levels & noise around it (headlines like Sensex @ 60,000) but should look at valuations of portfolios, stocks & MFs one has invested or plans to invest. If the economic recovery is in place, we believe there could be a possible earning upgrade in corporate earnings. We suggest mapping the equity allocation to long term financial goals & stay put.

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:
• 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 September 30, 2021.
The Risk Level of the Benchmark Index in the Risk O Meter is basis it's constituents as on September 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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