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Below are Views On S&P BSE Sensex increased by 6.2% on a total return basis in the month of February by Nilesh Shetty, Quantum Mutual Fund

S&P BSE Sensex increased by 6.2% on a total return basis in the month of February. On trailing twelve-month basis, the index has returned 29.9%. S&P BSE Sensex performance was much better than developed market indices such as S&P 500, which increased by 4.2% during the month. It was also better than the MSCI Emerging Market Index which rose by 2.2% during the month.

GDP moves out of recession

After two quarters of sharply negative growth, India’s GDP reported a marginally positive 0.4% growth in Q3FY21. GDP recovery continues to be led by Government spending, while private capex remains weak. High frequency indicators are also indicating economic activity is back to normal. Surprisingly expectations were slightly higher than the reported GDP, suggesting there is still some pain in the system especially in the unorganised sector. Feedback from corporate India remains strong and most companies have reported sharp jump in profitability in Q3FY21, driven by demand normalisation and cost efficiencies. Unless there is a significant increase in new Covid cases, its highly likely that the worst of the covid crisis is behind us. With Government spending expected to remain strong and liquidity to remain easy, GDP growth could surprise on the upside in coming quarters.

Flows Accelerate

FII’s continued to remain large net buyers of Indian equities, buying $3.5 bn worth in the month of
February. FII’s have purchased $5.4 bln worth of equity stocks for this year till date, this on the back
of US$ 23 bn of net buying in CY2020. DII’s have remained net sellers in February selling $2.3 bln
worth of equities. Indian rupee marginally depreciated by 0.73% during the month. India will be
reporting a very strong GDP growth in FY22 on a low base, making the India story very compelling for
foreign investors and its likely FII flows will remain strong for the CY21.

Rising Yields a worry

Bond markets have started showing nervousness about sharply rising commodity prices especially
crude. The equity rally which started in April 2020 has broad underlying assumptions of easy liquidity
plus large fiscal stimulus without significant uptick in inflation. Rising yields may queer the pitch and
trigger a selloff in global equities. We continue to believe Central bankers will strive to keep yields
low and continue to nurture the nascent recovery and drive employment in their respective
economies. As of now we do not believe equities will sell off significantly fearing rising yields.

Chart 3: Rising Commodity Prices… Chart 4: …. Driving Global Yields Higher

Domestically we have seen increase in covid cases in key states of Maharashtra and Kerala. The
numbers still remain far below peak but remains a cause for concern. India so far has been lucky not
to witness a second wave. Equity markets are factoring a normalisation of economic activity, any
substantial increase in new Covid cases will derail the recovery and may trigger a sharp sell off

Table 2: New Covid cases sharply lower but has risen from the lows

QLTEVF saw a 6.9% appreciation in its NAV in the month of February. This compares to 7.5%
appreciation in its benchmark S&P BSE 200. Marginal underperformance for the month was driven
by holdings in IT, Pharma and Auto. Cash in the scheme stood at approximately 6% at the end of
February. Market valuations remain elevated and are factoring a robust recovery. Earning reported
by corporate India have so far surprised positively and have led to slight upgrades. Rising earnings
and excess liquidity is expected to keep valuations high. Any risks to the economic recovery can
result in sharp correction. We remain constructive on Indian equities with longer-term view &
suggest a neutral weight. Given the sharp run-up, we believe any fresh allocation toward equities
should be staggered or through an SIP route.

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 Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views 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 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.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related
documents carefully.

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