Sustainable Growth or Bubble? What Sets the Current Equity Rally Apart from the Pre-Covid Rally?

The Indian equity market has witnessed several upswings in recent years, but the current rally is particularly noteworthy for its strength and breadth. Though momentarily Fitch’s downgrade of US credit rating may have led to a ripple effect in the India Equity Market causing the Sensex to slide downwards, the long term growth prospects look intact. There are a number of factors that have contributed to this rally. Explore what they are and how are they different from the equity rally before the pandemic struck between 2013-2018.

It is important to note that the factors noted above are just averages, and there can be significant variation within each period. For example, the GDP growth in 2016 was only 6.7%, while the inflation in 2018 was 5.4%.

The current rally is positively different from the previous rally in the 2013-18 period in a number of ways.

1. Stronger economic growth: India's economy is growing at a healthy pace that is more broad-based with several sectors of the market participating including IT, pharma, consumer discretionary, and financials.
2. FPI inflows makes a comeback: Foreign investors, who were on a selling spree and exited Indian equities for nearly 2 years have made a comeback and have been investing money to the tune of $33.4 billion into Indian stocks in FY 2023-24.
3. Robust earnings growth: Unlike the previous rally, EPS growth rate is broad based at 15.40% YTD 2023-24.
4. Policy reforms: Rise of digital India, and the government's pro-business policies in recent years, which has made India a more attractive destination for foreign investment.
5. Elevated inflation: Though inflation was higher in FY 23,  it is now within the RBI target of under 6%.
6. India’s Equity Markets surpasses EMs - Weak growth and uncertainty about government policies in China has increased the relative attractiveness of Indian market for FPIs. India’s economic resilience and policy stability compared to other EMs will continue to attract FII flows in the medium term.

In contrast, the rally between 2013 and 2018 was largely driven by foreign investment. The period was characterized by several macroeconomic shocks. The IL&FS crisis was a major financial crisis that affected India's infrastructure sector. Similarly, Demonetization & GST implementation also led to a slowdown in economic growth which weighed on the stock market, increasing volatility.

Only time will tell how long the current rally will last, but it is clear that the current rally is comparatively more sustainable, being driven by a combination of factors, including strong economic fundamentals & corporate earnings, inflows of foreign capital, rising exports and rising valuations.

However, investors should be aware of the risks, such as rising food inflation and global interest rate environment, which could weigh on the market in the future. Markets have become expensive as valuation has run up higher than historical averages. You should be careful about investing in certain pockets such as mid & small caps which have run-up considerably.

The Equity Funds of Quantum are tuned to India’s cyclical recovery and have delivered promising returns over the long run – outpacing benchmark on a since inception basis.

• Quantum India ESG Equity Fund delivered returns of 17.24% CAGR outperforming its benchmark (15.81%) & BSE Sensex TRI (15.65%).
• Quantum Long Term Equity Value Fund delivered returns of 13.58% CAGR vs benchmark S&P BSE 500 (12.57%) & S&P BSE Sensex (12.64%)**

Therefore, a sensible strategy would be to invest in well-diversified portfolio across market caps, sectors and investing styles using the above equity funds. Start building your equity basket using Quantum’s tried and tested 12|20:80 Asset Allocation Strategy.  Visit the Asset Allocation Calculator to know best how to go about building this diversified portfolio using Quantum Mutual Funds.

Overall, the Indian equity market is in a strong position, and the current rally may likely continue for some time. Stay invested or add more to your equity portfolio by building a diversified equity portfolio with a long term perspective.

**The above performance to be read in conjunction with the complete fund performance below.

Data as on July 31, 2023.
# S&P BSE 500 TRI ## S&P BSE 200 TRI ### S&P BSE Sensex TRI. Past performance may or may not be sustained in the future.
Load is not taken into consideration in Scheme returns calculation.
Different Plans shall have a different expense structure. Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR).
#with effect from December 01, 2021 Tier I benchmark has been updated as S&P BSE 500 TRI.
As TRI data is not available since inception of the scheme, benchmark performance is calculated using composite CAGR S&P BSE 500 index PRI Value from March 13, 2006 to July 31, 2006 and TRI Value since August 1, 2006. ##TRI data is not available since inception of the scheme, Tier II benchmark performance is calculated using composite CAGR S&P BSE 200 index PRI Value from March 13, 2006 to July 31, 2006 and TRI Value since August 1, 2006.
The Scheme is co-managed by Mr. George Thomas & Mr. Christy Mathai. Mr. George Thomas is the Fund Manager managing the scheme since April 1, 2022. Mr. Christy Mathai is the Fund Manager managing the scheme since November 23, 2022. For other Schemes Managed by Mr. George Thomas & Mr. Christy Mathai please click here

Data as on July 31, 2023.
#NIFTY100 ESG TRI, ##S&P BSE Sensex TRI. Past performance may or may not be sustained in the future.
Load is not taken into consideration in Scheme returns calculation. Returns are net of total expenses and are calculated on the basis of Compounded Annualized Growth Rate (CAGR).
The Scheme is managed by Mr. Chirag Mehta and Ms. Sneha Joshi. Mr. Chirag Mehta is the Fund Manager and Ms. Sneha Joshi is the Associate Fund Manager managing the scheme since July 12, 2019.
For other Schemes Managed by Mr. Chirag Mehta please click here.

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

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer of scheme	Riskometer of Benchmark
Quantum India ESG Equity Fund An Open ended equity scheme investing in companies following Environment, Social and Governance (ESG) theme Tier I Benchmark: NIFTY100 ESG TRI	• Long term capital appreciation • Invests in shares of companies that meet Quantum's Environment, Social, Governance (ESG) criteria.	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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