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Below are Views On Monthly Equity Views Auguest 2021 by Sorbh Gupta- Quantum Mutual Fund

S&P BSE SENSEX increased by 0.36% on a total return basis in the month of July-21. After a strong rally in the months of May & June, 2021 equity markets have further added to gains this month. Sensex has underperformed in the developed market indices such as S&P 500 & Dow Jones Industrial Average Index which appreciated by 2.37% & 1.33% respectively, during the month. It has, however, had a large outperformance vs MSCI Emerging Market Index. The latter was impacted by a slump in Chinese stocks.

The broader market continued its outperformance vs. Sensex, again this month. The S&P BSE Midcap Index appreciated by 2.54% and the S&P BSE Smallcap Index rose by 6.30%. With this month’s performance, the Midcap & the Smallcap index have given the return of 29.4% & 48.6%. on a YTD basis.

Quantum Long Term Equity Value Fund saw a 1.61% appreciation in its NAV in July 2021. This compares to a 0.98% appreciation in its benchmark S&P BSE 200. Cash in the scheme stood at approximately 8.3% at the end of July. Our portfolio bets continue to be skewed towards cyclicals like large financials, select commodities, mobility focussed consumer discretionary, and utilities as they benefit the most from the economic rebound tailwind. We are sticking to names that are market leaders in their respective domains, have capable management & strong balance sheets. Technology stocks owned by us are seeing earning upgrades despite elevated expectations demonstrating their ability to benefit from a strong demand tailwind for their services.

Economic activity has continued to improve in June & July (the unlocking began in the first week of June 2021). However, most indicators are soft as compared to March 2021 (before the 2nd wave lockdown). In the near term, recovery should continue as companies rebuilt channel inventories for the festive season. However, while the macroeconomic indicators are improving, credit demand in the economy, especially for a business loan is still lacklustre. The business loans have grown at anaemic levels of 1% y-o-y in July. The pickup in demand for term loans by corporates for fresh investments in capacity creation will be the key to the sustainable economic rebound. It has remained elusive for the past five years as Indian corporates have focussed on deleveraging their balance sheets rather than investing in newer capacities.

Monsoons have recovered after a brief lull:

The southwest monsoon had started well in the month of June-21. However, there was a lull in the progress of the monsoon in the first two weeks of July. It has picked up again & sowing acreage has started improving. The second wave of covid-19 had hit rural India hard, therefore a good monsoon & Kharif harvest is important for rejuvenation of the rural & semi-urban economy.

FPIs have been sellers but domestic MFs have been buyers:

FPIs have turned sellers of Indian Equities in July-21. They have sold US$ 1.5 bn worth of Indian Equities this month. On a YTD basis, FPI inflows stand at US$ 6.54 bn. DIIs have been buyers in the month of July-21 to the tune of US$ 2.08 bn. With nominal GDP growth improving & much of the developed world still grappling with near-zero interest rates, India will attract its fair share of foreign flows.

Larger companies better placed in covid-19 induced macro uncertainty

Macro-economic shocks over the last few years like demonetisation, hastily implemented GST, IL&FS crisis & Covid-19 induced lockdowns have helped the large companies become larger & stronger, helped by scale & balance sheet strength. The smaller companies however have weakened & lost market share. In this backdrop, as Covid-19 related uncertainty still lingers on, the midcap valuations are at close to all-time highs. Markets are choosing to ignore the risks associated with investing in smaller companies, but this could reverse quickly if global liquidity dries up or we face a Covid-19 third wave. We would like to reiterate our stance to tread with caution in the midcap & small-cap space. Retail investors should stagger their investments and diversify their equity allocation among different styles & caps for optimum results from their long-term equity allocation.

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