IGI Logo

The S&P BSE Sensex rose by 2.8% in the month of May, supported by corporate earnings
and improving macros. S&P BSE Midcap Index & S&P BSE Small cap Index increased by 6.3%
and 5.5% respectively. Margins expansion driven by price hikes and initial signs of volume
recovery led the rally in autos, the realty sector continued to do well given strong pre-sales
by developers and IT also rebounded following a tough April month. The Metals and Energy
sector underperformed the index driven by a weak global outlook.
Global indices had a mixed performance during the month. S&P 500 advanced by 0.4%, the
broader MSCI EM index declined by 1.6% and MSCI World Index declined by -0.92%. Rally in
S&P 500 was concentrated in specific pockets within Technology. The decline in the EM
index was driven by weaker than expected activity levels in China, which is a major
constituent of the MSCI EM Index.
In terms of flows, FPI turned positive for the third successive month with inflows of USD
4.5bn. Domestic institutional investors were sellers to the tune of USD 376 mn. Improving
domestic consumption with a relatively stable macro environment amidst global slowdown
puts India in a favourable light among the other countries.
Quantum Long Term Equity Value Fund (QLTEVF) saw an increase of 3.7 % in its NAV in the
month of May 2023, in line with Tier-I benchmark S&P BSE 500 and Tier-II Benchmark S&P
BSE 200 advanced by 3.7% and 3.6% respectively. Certain large positions within the banking
space, energy and metals were the drags in our portfolio. Cash in the scheme stood at
approximately 4.7% at the end of the month. The portfolio is valued at 12.5x consensus
earnings vs. the S&P BSE Sensex valuations of 17.4x based on FY25E consensus earnings;
thus, displaying value characteristics.
Earning season points to broad-based improvement in Consumption
The recent earning season highlights an improving trend in overall demand and
consumption. Cap-goods sector saw improvement in order books and Real estate witnessed
continued positive sales traction; Auto witnessed improvement in volumes across various
segments. Credit growth across banks was strong especially retail; some of the banks
reported record profitability driven by low credit cost and better NIMs.
From a macro standpoint, India stands out relative to peer countries; inflation is rapidly
moderating in India, current benign crude price and improving exports (especially non-IT
exports) put India in a comfortable position w.r.t CAD. Recent GDP print was also strong;
with certain capex-intensive segments showing growth; Gross fixed capital formation (GFCF)
saw a decent increase with investment activity picking up. Broadly the earnings trajectory is
trending well and the Indian economy despite the global turmoil is on strong footing.
Our portfolio is well-positioned to participate in the cyclical recovery of the Indian economy.
We are overweight on consumer discretionary especially 2-wheelers, here we clearly see
early signs of volume recovery. Some of the OEMs in our portfolio have additionally been
able to pass on the input price increases in their respective segments, leading to margin

improvements, which is positive. We believe this sector also trades at quite attractive
valuations which gives us a reasonable margin of safety.
The other key overweight for us is the BFSI space; here we are especially positive on private
banks. FY23 witnessed sharp improvement in ROE/ROA driven by NIMs and lower credit
cost; growth also rebounded from a low base with increased participation from corporates.
While some of the growth parameters may moderate after a strong performance in FY23,
we still believe banks are quite attractively placed on growth, profitability, and valuations
over the medium term. Lastly, we are also overweight on IT, which at the moment is going
through a rough patch. Here while the next few quarters can be challenging, we are hopeful
on demand recovering and Indian IT firms being able to capture a higher global market
share. We believe some of these firms trade at compelling valuations with quite attractive
FCF yields.
Summing up, we find India in a comfortable spot to benefit from a cyclical economic upcycle
over the medium term and while there could be uncertainty emerging globally or in India, as
the country is heading into national elections next year; investors should not be unnerved
by the near-term volatility and focus on allocating prudently to equity based on their
financial goals. Any sharp correction due to near-term headwinds can offer additional
valuation comfort and should be used to allocate more to equities with a long-term
perspective.

Above views are of the author and not of the website kindly read disclaimer