Equity
Outlook – April 2023
The S&P BSE SENSEX was flat at 0.05% on a total return basis
in the month of March 2023 while S&P BSE Midcap Index & S&P BSE
Small cap Index declined by -0.3% and -1.3% respectively. Utilities, Energy, FMCG, Capital goods, and
Healthcare outperformed the index with meaningful positive returns. IT, Auto,
and Realty sectors witnessed a decline w.r.t index for the month of March.
The broader rally in the Utilities sector was driven by a bounce
back in stocks of a specific conglomerate after a capital infusion from a
global fund. Certain stocks within the energy sector rallied on tariff revision
by the regulator. The IT sector was particularly hit by BFSI vertical exposure
after the fallout of certain global banks. Autos were also weak in anticipation
of a weaker number in tractors and 2W. Within broader financials, AMC stocks
were impacted due to the removal of taxation benefits to a certain category of
funds; banking was largely flat despite the turmoil in the global banking
sector.
Despite the negative global news flow,
global indices did well with S&P 500 advancing by 3.6%, the broader MSCI EM
index growing by 3.0% and MSCI World Index growing by 3.1%. Rally in these
indices was driven by a narrative around inflation moderating and expectation
of the Fed going slow on rate hikes, especially on the backdrop of the banking
crisis. In comparison, India after a strong CY22 performance is underperforming
many of its global peers YTD. Fed continued to tighten, with a 25bps interest
rate hike during the month; broader commentary suggests the interest rates will
remain at elevated levels.
In
terms of flows for the month, FPIs bought USD 1.5bn (the bulk of the inflows
attributed to a large investment in one specific conglomerate by a global
fund). Domestic institutional investors were buyers with purchases worth USD
3.7 bn. Trends (adjusted for large investment by the global fund in March -
2023) seem to be in line with what we witnessed in the calendar year 2022,
where FPIs have recorded a net outflow of USD 16.5 bn while DIIs recorded a net
inflow of USD 35.8 bn.
Quantum Long Term Equity Value Fund (QLTEVF) saw a decline of -1.29 % in
its NAV in the month of March 2023. Tier-I benchmark S&P BSE 500 and
Tier-II Benchmark S&P BSE 200 were marginally positive at 0.35% and 0.54%
respectively. Auto, IT, and AMC were the key contributors to underperformance
for the month. Cash in the scheme stood at approximately 5.19% at the end of
the month. The portfolio is valued at 11.3x consensus earnings vs. the S&P
BSE Sensex valuations of 15.9x based on FY25E consensus earnings; thus,
displaying value characteristics.
The global interest rate hike cycle that we are seeing from the start of
CY22 is a fundamental shift to how risks gets priced across the globe.
Typically, in such periods riskier and fragile business model gets exposed
apart from moderation in valuations, which is evident in expensive pockets.
During the month we witnessed the collapse of Silicon Valley bank, Signature
Bank, and the Swiss government-engineered takeover of Credit Suisse by UBS.
These events triggered global banking stocks to sell off until governments had
to step in. A host of issues were at work here, such as riskier clientele
(startups), weak liability profile, duration mismatch, and unchecked
risk-taking.
The impact of this crisis on India is limited to startups that are
dependent on foreign pools of capital. Indian banking systems are highly
regulated and in good health. There are stringent reserve requirements of SLR
(Statutory Liquidity ratio) and CRR (Cash reserve ratio) which serve as a
cushion for meeting the liabilities of Banks. Indian banks have stable funding
profiles with more than 60% of deposits from Retail which are stable and have
less risk of runoff. The balance sheets of the majority of large banks are the
healthiest in decades after multiple capital raises and forced recognition of
NPAs.
Indian IT services seem to be more impacted by the crisis than banks in
the near term. For most of the large Indian IT vendors, the BFSI vertical is
more than 30% of revenues; and a meaningful slowdown here can impact revenue
trajectory. However, tech spend intensity continues to be robust across large
banks globally and valuations have corrected across-the-board IT services since
last year. While there can be near-term weakness typically these companies end
up gaining market share and improving their value proposition to the client
through the crisis.
We continue to believe that the current market backdrop of relatively higher interest rates and broad-based growth suits value as a style. Our portfolio is positioned for a cyclical recovery in the Indian economy. We are positive on consumer discretionary especially 2-wheelers, which trade at attractive valuations; Financials which can benefit from capex recovery and IT Services.
The key near-term monitorable for the Indian markets are private capex trends, rural recovery, inflation trajectory, and subsequent central bank actions. We remain constructive on Indian equities with a long-term perspective.
Product Labelling:
|
Name
of the Scheme |
This
product is suitable for investors who are seeking* |
Risk-o-meter
of Scheme |
Riskometer
of Tier
I Benchmark and Tier
II Benchmark |
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Quantum Long Term Equity Value Fund (An Open Ended Equity Scheme following a Value
Investment Strategy) |
• Long term capital appreciation
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Quantum Tax Saving Fund (An Open Ended Equity Linked Saving Scheme with a
Statutory Lock in of 3 years and Tax Benefit.) Tier II Benchmark: S&P BSE 200 TRI |
• Long term capital appreciation
|
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*Investors should consult their financial advisers if in
doubt about whether the product is suitable for them.
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
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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.
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