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Below Equity View August 2023 by Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund

The S&P BSE Sensex rose by 2.8% in the month of August, supported by corporate earnings and strong flows. S&P BSE Midcap Index & S&P BSE Small cap Index increased by 5.8% and 7.5% respectively. Almost all major sectors were positive with Realty, Utilities, Capital goods, Metals, Healthcare and Telecom leading the index. The results reported so far, points to margin recovery driven by moderating input prices in most of the consumption-oriented themes. Technology, Banks, FMCG and Consumer durable were the laggards in the month gone by.  Most of the economic activity indicators remained strong; GST collection improved to Rs 1.65 trillion (+11% yoy), PMI Services/manufacturing witnessed improvement, other indicators such credit growth, E-way bill growth and power generation remained resilient. Monsoons are progressing well though there are some disruptions is certain parts of the country and CPI inflation print is expected to be above 6% in July driven by food inflation; this can have a bearing on near term policy rate trajectory.

US FOMC in line with market expectation hiked interest rate by 25bps in July; the labour market continues to remain tight in the US, though the inflation trajectory is moderating. Global markets did well during the month, with hopes of soft landing for the developed nations and broader technology rally. S&P 500 advanced by 3.2%, the broader MSCI EM index rose by 6.2% and MSCI World Index rose 3.3%; India trailed some of the EM peers.

In terms of flows, FPI flows were positive for fifth successive month with inflows of USD 4.2bn. Domestic institutional investors were sellers to the tune of USD 0.3 bn. Valuation within the large cap bucket remain marginally higher than long term average whereas valuation within mid/small caps remains elevated given the sharp rally in the past few months. The domestic flows have been particularly strong in the Mid/Small category in the past several months; constituting over 42% of total flows YTD. Hence some caution is warranted within this bucket. 

Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 4.5% in its NAV in the month of July 2023; Tier-I benchmark S&P BSE 500 and Tier-II Benchmark S&P BSE 200 which advanced by 3.9% and 3.5% respectively. Our allocation to Healthcare, Utilities and financials helped in outperformance w.r.t benchmark. Financials which include banks and NBFCs continue to witness favourable credit demand along with reasonable asset quality. Price stability in US market coupled with green shoots from product pipeline translated to positive performance of pharma sector. Outperformance from utilities segment was contributed by a power generation company, which would benefit from a healthy capacity addition across conventional thermal and renewable sources. In terms of portfolio characteristics, cash in the scheme stood at approximately 6.4% at the end of the month. The portfolio is valued at 13.5x consensus earnings vs. the S&P BSE Sensex valuations of 18.1x based on FY25E consensus earnings; thus, displaying value characteristics. 

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