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Quantum Mutual fund arranged an exclusive Webinar on the asset class outlook and the macroeconomic factors that are likely to determine their growth on June 30, 2021. Sorbh Gupta, Fund Manager - Equity, and Pankaj Pathak, Fund Manager -Fixed Income and Chirag Mehta, Sr. Fund Manager -Alternative investments, offered their views

Sorbh Gupta, Fund Manager of Equity, said that “A question in every investor’s mind is why is equity markets moving sharply? Is it only liquidity, or is it a bubble? The reality is that the economic activity in some sectors is similar or higher than pre-Covid levels. Companies’ operating profit have been moving up sharply and is at the highest levels since past 6-7 years. Net sales are also moving up to the highest levels and also the operating margins.”

He goes on to say, “The driver of this earning growth is that there is a pent-up demand, lower interest rates and finally, companies have done very well in their cost control measure

“Companies have done a good job in operating in the newer environment, by adopting technology and thus their profitability is higher than pre-Covid levels. This is getting reflected in the stock markets,” Sorbh added.

He goes on to say, “On delving deeper, we understand that the concentration of economic power is moving towards large-listed companies. Hence the large is getting larger and the small is getting crushed.

Real estate revival is happening & it has a lot of multiplier effect in the economy.”

He concludes by saying, “There is a lot of potential in the long term. Stocks in Quantum’s equity portfolio are focused towards economic recovery at the same time have the ability to survive the downturn, Some stocks are positioned to benefit from further recovery in the rural markets.

Pankaj Pathak, Fund Manager of Fixed Income, says "it seems we are at an inflection point in long term interest rate cycle. Inflation has been running higher than the RBI threshold of 6% and the government is borrowing a lot more than what the bond market could absorb. As the economy is recovering at a steady pace, the RBI may take back some of the crisis time easing measures in coming quarters. All this will put upward pressure on the bond yields. So interest rate is poised to move higher over next 2-3 years."

“However, some part of bond yield curve is already pricing the potential policy normalization. There is scope for short-term yields to move up in the near future, and it is good for short-term investors as we get higher rollover yields. The 3-month yield is currently 3.5%, and 5 years is closer to 6%. If investors are looking to enhance their yields, there is some opportunity. But there is a market risk due to higher duration. The good news is that investors can overcome this risk by having longer time horizon.

He concludes by saying, “Credit market is still not out of woods and investors should be cautious in taking credit risk." He also highlighted some structural issues with the credit market and credit risk funds and said that - " Risk-reward dynamics is not favorable in credit risk funds. To get 1-2% extra return everything has to go right. if anything goes wrong, there could be even loss if capital not just returns .”

Chirag Mehta, Sr. Fund Manager, Alternative Investment, says, “There is a lot of optimism on the fastpaced growth momentum to continue in the developed countries as the Covid-19 vaccination pace has picked up, which is seeing increased appetite for risk assets globally. It is where Gold is facing some headwinds.”

Fed Reserve has indicated that it will raise interest rates as early as 2023 as high inflation rates warranted them to show some action. Inflation has seen a sharp uptick. A combination of QE (Quantitative Easing) - fiscal injections and the spending is leading to an uptick in the economy and inflation is likely to be sticky at least for the foreseeable future. A higher inflationary environment will keep pressure on real interested rates which accompanied by a weaker would be good for Gold,” he added.

He concluded that asset allocation and periodic rebalancing are needed to protect investor’s investments to limit downside risk.

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