Published on 10/10/2018 11:34:38 AM | Source: Quantum Mutual Fund

Quantum AMC: Monthly Views Equity by Mr. Atul Kumar, Head - Equity Funds

Below is the View On Equity by Mr. Atul Kumar, Head - Equity Funds Quantum Long Term Equity Value Fund & Quantum Tax Saving Fund

September turned out to be a volatile month for Indian financial markets including equities. S&P BSE Sensex fell by 6.21%. This was highest monthly fall in the calendar year so far. Mid cap and small cap stocks were meted even more severe treatment. S&P BSE Midcap index declines 12.44% while BSE Smallcap index was down 15.95% in September. For the 9 months of year 2018, S&P BSE Sensex has risen 7.44%. In comparison, S&P BSE Smallcap and S&P BSE Midcap have fallen 24.4% and 16.5% respectively.  

IT and FMCG were the two sectors which had positive returns during the month of September. Continuing currency depreciation was boon for exporters including IT services firms. Among losing sectors, real estate, telecom and banks were prominent. Markets were complacent for large parts of the year, as measured by VIX. This rose in the month of September as in early 2 months of 2018.     

FIIs sold stocks heavily in the month of September. Their sales were USD 1.31 Bn for the month. So far in current year, FIIs have offloaded stocks worth USD 2 Bn. Domestic institutions were buyers to the tune of USD 1.3 Bn during the month. Of this, USD 1.1 Bn came from mutual funds while insurers bought worth USD 630 Mn. USD 12.2 Bn has been pumped in equities by domestic institutions so far in current year. Indian rupee depreciated 2.1% during the month against US dollar. 

In global markets, cost of money has risen and liquidity becomes tighter. US central bank raised interest rates by 0.25%, for the third time in 2018. There are expectations that it will hike once more in current year. Better wage growth and lesser employment are leading to tighter monetary policy in an economy which is growing strongly. Europe is also looking to reduce its asset purchases and rise in interest rates could be around the corner. Other developed countries such as UK have also been raising interest rates.  

Japan remains the only major economy which is unlikely to end loose monetary policy in the near future. As interest rates rise, there is risk of foreigners withdrawing from emerging markets. Most asset classes were inflated due to surge of liquidity at zero interest rates in developed markets post Lehman crisis. There could be decline in equity and other asset classes as foreigners prefer their home markets.

Tariff war between US and China continues and higher duties has been implemented for goods worth USD 200 Bn. This has a disproportionate effect on Chinese economy and led to significant fall in its stock markets. There are expectations that the two countries could compromise after China making concessions. Brexit negotiations are also hanging in balance. Unfavourable outcome of the same could impact global financial markets  

 The state of financial markets in India also was tumultuous during the month of September. It started with default made by ILFS on interest payments to some its creditors. This led to downgrade of its rating by several notches overnight. Many mutual funds were caught holding its paper in their debt schemes – liquid as well as longer term schemes. They were forced to take a write down. Subsequent to this, there was news of a mutual fund selling paper of another NBFC at very high yield (meaning low price). This set rumors in debt/equity markets that there could be defaults/ liquidity crunch. Many NBFC stocks saw their stock price crashing.  

The contagion spread to stocks of other sectors as well. Many stocks which were quoting at rich valuations witnessed larger decline. MD of a decent size private sector bank saw non-renewal of his term by the regulator, RBI. Another bank, which listed on stock market few months back was constrained by RBI from opening new branches as it didn’t meet its shareholding criteria. This was preceded by regulations from SEBI for mutual funds. SEBI announced a number of measures in investors’ interest including banning of upfront commission by AMCs. Regulatory risks came to the fore in the month and spooked investor wealth in those stocks.

On the macroeconomic front, crude oil price surpassed USD 80/bbl as supply was constrained. Sanctions on Iran led to surge in oil. This doesn’t bode well for India given the dependence on oil imports. Inflation was well contained at 3.7% for the month of August. RBI’s monetary policy in early part of October has maintained status quo in interest rates. India’s macro situation has worsened even as micro (companies’ level) continues to improve.

There has been a good correction in stock prices and the same has been continuing. Many stocks which looked highly valued now seem to come within reach. We are likely to find new stocks for our portfolio and cash level can fall further. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can expect decent return from equities over a long period in future. Investors should take advantage of recent fall in stock markets and put more money.



The views expressed here are the personal view of the Fund Manager. The views expressed here do not constitute any guidelines or recommendation on any course of action to be followed by the reader. The views are based on the publicly available information, internally developed data and other sources believed to be reliable. The views are meant for general reading purpose only and 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 readers. 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 opinions given fair and reasonable. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. None of The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this document.


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