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Asset Outlook and Economic View in the Current Market Scenario

Asset Outlook and Economic View in the Current Market Scenario

Fund managers of Quantum Mutual Fund give their perspective on the asset outlook for the mid-year 2021 for the three assets of equity, debt and gold. Find answers to questions like how is the performance post-Covid 2nd wave? What are the underlying macroeconomic indicators that could determine future prospects? How do you allocate across different assets to mitigate downside risk?
www.Quantumamc.com

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Quantum Mutual Fund

August 04, 2021
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  1. Asset Class Outlook & Economic View in the Current Market

    Scenario Speakers: Mr. Sorbh Gupta, Fund Manager – Equities Mr. Pankaj Pathak, Fund Manager – Fixed Income Mr. Chirag Mehta, Senior Fund Manager – Alternative Investments July 30th 2021
  2. Equity Outlook

  3. Covid 19 – Second Wave Wanes, Vaccination Pace Slow Source:

    Bloomberg. As on 30th June 2021. • New covid cases has seen a sharp deceleration post a very severe second wave. Most state governments are gradually reducing restrictions Source: Our world in data • As on July 15, 2021, ~23% of the population has received one dose and 5.6% have been fully vaccinated • Government is expected to fall well short of its plans to vaccinate 300 mln people by August 2021 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 India -Daily New Covid Cases 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 January-21 February-21 March-21 April-21 May-21 June-21 India- Daily Vaccine Doses Administered
  4. Economic Activity Gradually recovering Economic activity in some sectors are

    at similar or higher than pre Covid-19 level Production Trends May 2021 as % of Feb 2020 Credit and Consumption Trends May 2021 as % of Feb 2020 Cement Production 79.0% Bank Credit 107.0% Steel Production 97.0% Bank credit to Industry 103.0% Fertilizer Production 95.0% 2-Wheeler Sales 44.0% Coal Production 89.0% Passenger Car Sales 40.0% Crude Oil Production 102.0% Tractor Sales 98.0% Natural Gas Production 118.0% Air Cargo 89.0% Petroleum Refinery Products 91.0% Rail Freight traffic 108.0% Electricity Generation 105.0% Port cargo 99.0% Source: CMIE
  5. 5 Corporate Profits at an all time High, Expectations of

    strong demand rebound • Corporate profitability hit a record in Q4FY21 driven by strong revenue growth and strict control on costs . • Demand is expected to rebound post unlock driving sales, but higher input costs and normalizing other costs may see profit growth lag revenue growth Source: CMIE- Economic Outlook
  6. Demonetization, GST, Covid: Large Companies Getting Larger Source: CMIE- Economic

    Outlook, Data as of March 2021
  7. Consensus Earnings Upgrades After Many Years of Flat Growth Source:

    Bloomberg. As on 30th June 2021. Past Performance may or may not sustained in future.
  8. Spiking PER Overstates Valuation Given The Prior Quarter’s Gap Down

    Source: Bloomberg. Data as on 30th June 2021. Past Performance may or may not sustained in future.
  9. Indians Still Consuming: The Hungry Consumers! *2022 YTD data: Two-wheeler

    sales data as on May '21, Passenger Vehicle sales data as on May ’21, Refrigerator data as on April ’21, Cement sales data as on May' 21, Housing loans data as on May 2021, Source: 2 wheelers, Cement & passenger vehicle – CMIE database; refrigerator production data – CMIE (IIP) database; home loans outstanding – RBI Data on Sectoral deployment of Bank credit (June 2021). ** Annualized Returns Year (March end) 2-wheelers (Domestic sales Mn units) Passenger Vehicles (Domestic sales Mn units) Refrigerators (Production Mn units) Cement (mn tn) Home loans outstanding (Rs. bn) 2008 8,064,903 1.6 6.1 174 2,603 2009 8,439,786 1.6 6.7 187 2,794 2010 10,511,009 2.0 8.0 207 3,009 2011 13,302,335 2.5 8.7 216 3,499 2012 15,384,261 2.6 9.9 230 3,971 2013 15,753,563 2.7 11.1 248 4,567 2014 16,890,778 2.5 10.7 256 5,386 2015 18,433,027 2.6 12.0 270 6,285 2016 18,938,727 2.8 11.9 283 7,468 2017 19,928,958 3.1 13.1 280 8,601 2018 23,007,691 3.3 13.5 298 9,746 2019 24,460,688 3.4 15.6 337 11,601 2020 20,936,201 2.7 15.0 334 13,498 2021 18,397,111 2.5 11.2 294 14,591 2022 YTD * 2,137,881 0.4 1.3 52 14,620 CAGR (since 2008 till 2021) 6.5% 3.8% 4.8% 4.1% 14.2%
  10. India’s Economy May Grow >6% p.a. Real GDP growth rate

    across 10 governments has been 6.1% p.a. over the last 41 years 6.5% is a good long-term assumption; 8% is NOT a good long-term assumption! Source: RBI and www.parliamentofindia.nic.in as of March 2021. Note: The number in red rectangle is from a changed data series starting Jan 2015. While a “superior” series, there is no comparable number to equate the “New” with the “Old”. Most economists deduct 0% to 1.5% from the “New” to equate to the “Old”; therefore under Modi, the GDP has been at 5.9% at best matching the 5.6% under the BJP-led coalition government of Vajpayee that resulted in a rout for the BJP at the time of the next election in 2004!* Please note that data used for World GDP for 2017 is a median Estimate since World Bank data is not yet available and India GDP data is governments second advance estimate released at the end of May 2021.
  11. Foreign Investors Return as New Covid Cases Decline; Third Wave

    Could Again Lead to outflows Source: Sebi.gov.in, NDSL, As of June 30, 2021 Period Net Foreign Activity (USD bn) Net Local Activity (USD bn) Total Activity (USD bn) Change in S&P BSE-30 TRI in that period (% ) ( % USD) CY 2003 6.6 0.1 6.7 +86.5% CY 2004 8.7 -0.3 8.4 +20.5% CY 2005 10.7 3.0 13.7 +40.2% CY 2006 8.1 3.4 11.5 +51.6% CY 2007 17.7 1.7 19.4 +67.0% CY 2008 -12.0 3.3 -8.7 -60.8% CY 2009 17.5 -1.2 16.3 +90.3% CY 2010 29.4 -6.1 23.3 +24.2% CY 2011 -0.4 1.3 0.9 -35.7% CY 2012 24.4 -3.9 20.5 +24.1% CY 2013 20.1 -3.7 16.4 -1.9% CY 2014 16.1 3.9 20.0 +29.2% CY 2015 3.2 11.1 14.3 -8.1% CY 2016 3.2 7.1 10.3 +0.9% CY 2017 7.8 18.4 26.2 +37.8% CY 2018 -4.4 17.6 13.2 -2.0% CY 2019 14.4 7.6 22.0 +13.1% CY 2020 23.0 -7.5 15.5 +14.5% YTD 2021 8.3 -2.1 6.2 +8.7% June 2021 2.4 0.9 3.3 -1.0% Cumulative 202.4 53.7 256.1 +1215.7%
  12. Quantum Long Term Equity Value Fund

  13. 13  Value Oriented Equity Diversified Fund since March 2006

     Well balanced portfolio: typically 25 to 40 stocks, across sectors  Instrumental for Long Term Financial Goals like Retirement, Child’s Education, Child’s Marriage & Wealth Creation  A disciplined research and investment process  Low portfolio turnover: Buy after Conviction, Hold it for long  Holds shares or cash: No derivatives, No hedging Quantum Long Term Equity Value Fund – A Must have Equity Diversified Fund
  14. 14  Winter crop (Rabi) production has been robust &

    monsoon is expected to be normal. Some of the portfolio stocks are well positioned to benefit from strong agri & rural economy  High quality stocks available at reasonable valuations were added to the portfolio in the correction in February & March 2020  Higher weight in NBFC, Consumer discretionary and IT  Portfolio stocks look comfortable after stress test - have strong balance-sheet or strong parentage to survive the downturn  Existing cash holding will be used to add new names in case of correction Portfolio Outlook
  15. 15  Boom: – Real economic activity continue to revive

    & corporate earning upgrade happen • Real estate revives – stamp duty cut, lower interest rates spur real estate demand • Factories relocate from China to India – Foreign flows – FDI + FII driven by higher yields and faster growth  Bust: – Poor Government Policy – Resurgence in Covid cases, Poor execution of Vaccine rollout – Rising Inflation could dampen Demand Recovery 2021 – Boom & Bust, Evenly Poised
  16. Fixed Income Outlook

  17. Interest Rates at Historic Lows Source – Bloomberg; Quantum Research,

    Data as of 30th June 2021 Past performance may or may not sustained in future 2.0% 4.0% 6.0% 8.0% 10.0% 10 year Gsec 1 year Gsec
  18. Government Borrowing to Remain Elevated 0 2000 4000 6000 8000

    10000 12000 14000 FY15 FY16 FY17 FY18 FY19 FY20 2021 2022 BE Gross borrowings Net market borrowing Borrowing Amount in INR Billion Govt Borrowings jumped after Covid-19 Source – CMIE, Indiabudget.gov.in, Quantum Research
  19. ‘Das PUT’ in Action -1.0 0.0 1.0 2.0 3.0 4.0

    5.0 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022* Amount in Rs. Trillion RBI's Bond Buying Gross Purchase Net OMO * FY22 data is from 1st April 2021 till 26th July 2021 only. Source – RBI, Quantum Research, data as of 26th July 2021
  20. Inflation breached the 6% ‘Laxman Rekha’ 0.0% 2.0% 4.0% 6.0%

    8.0% Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 CPI-Headline Core-CPI Source – MOSPI, Quantum Research, data as of June 2021
  21. Do We Need Fixed Income in our Portfolio? Liquidity Income

    Diversification
  22. Seeking Opportunity In The Elevated Yield Curve 3.0% 3.5% 4.0%

    4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y 15Y 19Y 24Y 30Y India India Sovereign Sovereign Yield Curve 26-Jul-21 31-Dec-19 Source – Bloomberg, Quantum Research, data as of July 2021 Past performance may or may not sustained in future
  23. Long Duration Funds are for Longer Period Source – AMFI

    Portal, Quantum Research, data as of 30th June 2021 Past performance may or may not sustained in future 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Crisil Composite Bond Index 1 year Return 3 Years Annualised Return
  24. Credit Risk…??? • credit defaults causes permanent damage to portfolio

    Losses Are Generally Non- Recoverable • stress in a small pocket can cause system wide problem Contagion Risk • difficult to sell to meet heavy redemptions or churn portfolio Illiquidity • upside is limited but downside could be severe Unfavorable Risk Returns Dynamics • Low grade debt tends to struggle in slow economy & weak equity markets No Diversification
  25. Presenting a Barbell Strategy combining Safety First Approach of Quantum

    Liquid Fund with Active Duration Management of Quantum Dynamic Bond Fund
  26. Quantum Liquid Fund – Safety First ALWAYS Prioritize Safety over

    Returns Zero Private Corporate Debt Invests only in Government Bonds, Treasury Bill or AAA rated PSUs Low Credit Risk = Low Liquidity Risk A reasonable portion of portfolio in cash or overnight asset
  27. Active Duration Management Quantum Dynamic Bond Fund If interest rate

    expected to rise Focus on protecting value Invest in short term securities to make the portfolio less sensitive to rising interest rate If interest rate expected to go down Focus on capital appreciation Invest in long term securities to which gain more when interest rate falls In all market conditions fund maintains credit risk at minimal levels by not investing in any Private Credit
  28. In Conclusion… Safety First is the ONLY sensible approach to

    take for your cash balances Ride through the uncertain interest rate environment by having longer tenor Chasing the maximum possible return carries risk you do not want to take on Prudence is in lowering your returns expectation closer to market reality
  29. Gold Outlook

  30. Gold is a Monetary Asset – Gold has kept up

    with money supply growth Data as of April 2021 Source: fred.stlouisfed.org Past performance may or may not sustained in future 0 200 400 600 800 1000 1200 1400 1600 1974 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 US Money Supply - M2 Gold Prices Rebased = 100
  31. 31  Improving macroeconomic situation isn’t good news for gold;

    risk appetite is improving Headwind: Optimism leads to risk on rally  Progress on vaccinations around the globe and reopening of economies Will the momentum sustain if the monetary and fiscal support wanes and beyond the pent-up demand that we have seen so far? Is optimism surrounding growth over stretched? S&P 500 Data as of July 25, 2021 Source: Investing.com
  32. 32  The US central bank signaled it will raise

    rates earlier than planned in 2023. Headwind: Change in Fed stance  With inflation raging, the Fed has to show awareness… Premature tightening could throw economic recovery off track Data as of 23 July 2021. Source: fred.stlouisfed.org Percent change in US Consumer Price Index from a year prior Data as of May 2021. Source: Statista.com
  33. 33 Tailwind: Virus Mutations + Poor Vaccine Policy  The

    highly contagious Delta variant appears to be taking hold  Further Virus mutations could deliver a fresh blow to the economy and send shockwaves through financial markets  Amid growing fears of a third wave, protecting and reviving their economies is still central banks' priority  Liquidity may not dry out soon and could continue to fan inflation, which would be conducive for gold
  34. 34  If inflation is transitory, one should not expect

    significant rate hikes as Fed wouldn’t want to derail the recovery or increase costs of servicing the ballooning federal debt  If inflation persists, the Fed will be behind the curve, triggering even higher inflation and thus lower real interest rates Tailwind: Inflationary pressure likely to persist  Even if the Fed tightens credit, the US Government continues to pursue highly inflationary policies Percent change in Consumer Price Index from a year prior Data as of April 2021. Source: fred.stlouisfed.org Data as of December 2020. Source: fred.stlouisfed.org, lynalden.com
  35. 35  Accommodative Central banks  Interest rates set to

    remain low until 2023 and possibly beyond  Interest rate hike by central banks to lag inflation – Real interest rates to remain low to negative  Central banks continue to fund deficits / asset purchases Gold’s fundamentals remain supportive  Economies will need Government support in form of higher spending  US to soon unveil a massive infra spending  A weaker dollar 0 1 2 3 4 5 6 7 8 9 10 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 US -FED JAPAN - BOJ EU -ECB CHINA - PBOC $ Trillion Real interest rates will continue to be under pressure Data as of June 2021. Source: Bloomberg Data as of June 2021. Source: Bloomberg -6 -4 -2 0 2 4 6 8 10 12 0 250 500 750 1000 1250 1500 1750 2000 2250 % USD Gold price US Real interest rate Central Bank balance sheet – Total Assets
  36. Rising deficits & debt in the US are making the

    Dollar vulnerable Weakness and falling confidence in the dollar tends to strengthen gold Data as of September 2020. Source: fred.stlouisfed.org Data as of March 2021. Source: fred.stlouisfed.org
  37. 37  Conflicting macro economic factors to keep gold range

    bound  Many risks on the anvil that could support gold  Fundamentals remain constructive but pressured by a risk on sentiment  Investors should maintain exposure to the strategic asset class based on their asset allocation strategy  Don’t go overboard; Maintain 10-15% allocation to the portfolio diversifier via Gold ETF’s What should investors do
  38. Asset allocation

  39. Asset Class Outlook for 2021 if Covid-19 Recedes Central banks

    stay accommodative for some time before tapering Equities Debt Gold Strong wave of spending Equities Debt Gold Corporate and government balance sheets improve Equities Debt Gold Increase in inflation Debt Equities Gold Equities > Debt, Gold
  40. Asset Class Outlook for 2021 if Covid-19 Lingers Recessionary conditions:

    less spending Equities Debt Gold Central Banks stay accommodative to boost growth Equities Debt Gold Liquidity will lead to asset price inflation Equities Debt Gold Lower taxes, lower GDP and higher spending will increase Government deficit Debt Equities Gold Debt, Gold > Equities
  41. Risk-Return Equity +Debt +Gold * Equity + Debt ** Equity

    Debt Gold CAGR 11.13% 11.17% 12.85% 7.20% 11.30% Annualized SD 9.40% 13.48% 22.08% 3.28% 17.38% VAR -15.51% -22.25% -36.43% -5.41% -28.67% Maximum Drawdown (0.21) (0.36) (0.56) (0.06) (0.25) Sharpe Ratio 0.541 0.380 0.308 0.349 0.302 Portfolio Impact of Diversification If you compound your money at 12% per year you are better off than an investor who makes 25% in one year and loses 20% in the next The most diversified strategy yields similar returns with the lower volatility, compared to a pure equity strategy 41 Time frame is November 2004 to June 2021. The period is taken from 2004 since the asset allocation weights are calculated based on normalizing the historical monthly equity and debt indicators. Given the normalization time frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a constraint. Compiled by Quantum AMC *Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range Based on Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices Note: Past performance may or may not be sustained in the future
  42. Quantum Multi Asset Fund of Fund An example of dynamic

    asset allocation Data as of June 2021; Source: Quantum MF Note: Past performance may or may not be sustained in future. 0 15000 30000 45000 60000 75000 90000 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% 55.00% 60.00% 65.00% Equity allocation Sensex TRI
  43. 2021- A Simple Asset Allocation Strategy to Deal with Market

    Cycles
  44. Solutions to meet Sustainable Development Goals: SGD-17 SMILE was born

    out of our desire to support credible NGOs and create a steady stream of money flow for them Since 2018, Quantum MF investors have supported 7 NGOs from diverse sectors via the SMILE facility WHAT IS SMILE? THE SMILE STORY OUTCOME SO FAR SMILE enables Quantum MF investors to contribute 10% of their investment in eligible schemes to charities vetted by HelpYourNGO + = “SMILE”
  45. SMILE Process Flow Q Long Term Equity Value Fund Q

    Equity Fund of Funds Q Dynamic Bond Fund Q Multi Asset Fund of Funds Q Gold Savings Fund Q Liquid Fund Donated to NGOs selected by investors and vetted by HelpYourNGO HelpYourNGO sends donation receipts and 80G Liaises with NGO grantees Monitors & reviews INVEST IN SMILE FACILITY DONATE TO NGO’S DONATION RECEIPTS Investors receive periodic program reports from HYNGO on the NGOs supported by them Investors receive periodic program reports from HelpYourNGO on the NGOs supported by them * Q Stands for Quantum for scheme names
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  50. Disclaimer – Terms of Use The data in this presentation

    are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation 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 suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required as per SEBI Mutual Fund Regulations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. None of the Sponsors, the Investment Manager, the Trustee, their respective Directors, Employees, Affiliates or Representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the data/information/opinions contained in this presentation. The Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required. Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-). Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956. 30th July 2021 Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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