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Investing When Valuations are High

Investing When Valuations are High

How do you invest when valuations are high? What are the parameters that an investor needs to consider before he decides to invest? Explore the deck where Sorbh Gupta, Fund Manager, Equity, Quantum Mutual Fund answers these questions & more.
www.Quantumamc.com

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Quantum Mutual Fund

December 01, 2021
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  1. Investing When Valuations are High Speaker: Mr. Sorbh Gupta, Fund

    Manager: Equities November 12th, 2021
  2. 2 Vertical Takeoff after the Covid Scare Source: Bloomberg Finance

    L.P., As of October 29, 2021, Past Performance may or may not be sustained in future. *Aug 28, 2013 is the day when the Rupee hit an all-time low and Sensex hit 2013 intra-day low
  3. 3 PER Elevated – Will Markets Deliver on Elevated Expectations?

    Source: Bloomberg Finance L.P., as of October 29, 2021. Past Performance may or may not be sustained in future.
  4. 4 Markets Supported by Consensus Earnings Upgrades After Many Years

    of Flat Growth Source: Bloomberg Finance L.P.; as of October 29, 2021 Past Performance may or may not be sustained in future
  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. Past Performance may or may not be sustained in future.
  6. 6 Demonetization, GST, Covid: Large Companies Getting Larger 14% 3%

    3% -1% -7% -8% -16% 9% 14% 6% -5% -15% -12% -18% -25% -13% -17% 6% 16% 5% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% Paints Steel Cement Ceramic tiles Passenger cars Two-wheelers CV Bank Credit AMC AUM Gen. Ins. Premium Listed Company Growth YoY Industry Growth YoY Source : CMIE, RBI, IRDAI Note : YoY growth in FY21, Volume Growth for manufacturing sectors like paint,steel,auto etc. Credit growth for private sector banks is compared to systemic credit growth. Source: CMIE- Economic Outlook, Data as of March 2021
  7. 7 Strong Flows: Fed Tapering Could Act As Pause Not

    a Full Stop 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 7.1 3.9 11.0 +22.4% October 2021 -1.8 0.8 -1.0 -0.4% Cumulative 201.2 59.7 260.9 +1381.2% Source: Sebi.gov.in, NDSL, As of October 29, 2021. Past Performance may or may not be sustained in future.
  8. 8 Domestic Institutional Flows Come Back After Second Wave ebbs

    & Improvement in Employment Levels Source: CLSA and Bloomberg Finance L.P., as of October 29, 2021
  9. 9 Scenarios To Ponder Corporate Earnings Liquidity Equity Valuations Equity

    Returns Rising Easy High Positive Rising Tight Moderate Slight Decline Stagnant/Falling Easy Moderate Slight Decline Falling Tight Falling Sharp Correction Most Likely Scenario, But Returns may moderate
  10. 10 Markets are Heterogeneous… Well, Most Of The Time Source:

    Bloomberg Finance L.P.; based on daily total returns as of October 29, 2021. Past Performance may or may not be sustained in future. YTD CY CY CY CY CY CY CY CY CY CY CY CY 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 BSE-30 INDEX S&P BSE SENSEX 30 INDEX 25.4% 17.2% 15.7% 7.2% 29.6% 3.5% -3.7% 32.0% 10.7% 28.0% -23.6% 19.1% 83.3% BSE200 INDEX S&P BSE 200 IDX 30.7% 17.9% 10.4% 0.8% 35.0% 5.4% -0.2% 37.6% 6.2% 33.2% -26.0% 17.8% 90.9% BSE500 INDEX S&P BSE 500 IDX 32.4% 18.4% 9.0% -1.8% 37.6% 5.2% 0.4% 39.1% 5.0% 33.4% -26.4% 17.9% 92.7% BSETCD INDEX S&P BSE INDIA Cons.Dur IDX 42.6% 22.2% 21.5% -8.3% 102.9% -5.8% 24.8% 67.3% -23.9% 47.1% -16.2% 69.6% 100.6% SPBSHLIP INDEX S&P BSE INDIA HEALTHCARE IDX 16.1% 62.6% -2.8% -5.4% 1.1% -12.5% 15.9% 48.8% 24.9% 39.8% -12.1% 35.4% 71.2% SPBSITIP INDEX S&P BSE India IT IDX 40.2% 60.3% 11.8% 27.3% 13.3% -6.1% 6.4% 19.5% 62.3% 0.7% -14.6% 34.1% 135.9% BSETECK INDEX S&P BSE India TECK Index 36.6% 46.5% 11.1% 12.4% 18.8% -7.6% 5.4% 18.2% 49.3% 3.0% -15.5% 25.4% 69.9% SPBSCGIP INDEX S&P BSE India FMCG Index 13.3% 13.2% -2.2% 12.1% 33.3% 4.8% 3.6% 20.1% 12.5% 49.5% 11.7% 35.5% 43.3% BSEAUTO INDEX S&P BSE India Auto IDX 23.1% 14.3% -9.9% -21.3% 33.3% 10.4% 0.1% 53.8% 8.9% 42.8% -18.6% 40.3% 208.3% BSEOIL INDEX S&P BSE India Oil&Gas Index 34.4% -0.6% 10.6% -12.6% 37.8% 30.4% -1.2% 14.1% 5.9% 15.8% -28.3% 2.7% 75.0% BSEPOWR INDEX S&P BSE INDIA POWER INDEX 65.8% 11.4% -0.6% -14.3% 22.0% 3.0% -5.3% 25.5% -12.4% 12.8% -39.1% -5.4% 76.1% BSETCG INDEX S&P BSE India CapGoods IDX 43.5% 12.5% -8.8% -0.5% 41.4% -2.3% -7.8% 51.9% -4.0% 36.6% -47.1% 10.0% 106.1% BANKEX INDEX S&P BSE INDIA BANKEX IDX 24.8% -2.1% 21.1% 5.7% 40.0% 8.4% -9.0% 67.1% -8.0% 59.1% -30.7% 35.0% 86.8% BSEREAL INDEX S&P BSE India Realty Index 61.2% 9.2% 27.6% -30.7% 107.2% -5.3% -12.8% 9.4% -31.2% 54.4% -51.6% -25.7% 70.0% BSETPSU INDEX S&P BSE INDIA PSU IDX 54.9% -12.8% -1.1% -18.7% 22.7% 16.9% -14.9% 44.8% -16.5% 18.6% -31.6% 1.2% 82.5% BSEMETL INDEX S&P BSE INDIA METAL INDEX 76.9% 18.4% -10.2% -16.3% 52.8% 43.2% -28.8% 11.1% -7.5% 21.5% -46.5% 2.1% 238.8% Securities Name
  11. Careful Stock Selection & Looking Beyond Noise is Extremely Important

    11 S&P BSE-30 Index surpasses previous peaks in INR and USD terms ICICI has done well, but still lags the more prudent HDFC Bank since January 2007 Real estate remains an opaque business: DLF & Unitech “performed” well in 2007, not over long run “Boring” retailer Trent has soared compared to the more flamboyant – and leveraged – Pantaloon… Source: Bloomberg Finance L.P., data as of October 29, 2021 Disclaimer : Stocks referred above are illustrative and not recommendation of Quantum Mutual Fund/AMC. The Fund may or may not have any present or future positions in these Stocks. The above information of stocks which is already available in publically access media for information and illustrative purpose only and not an endorsement / views / opinion of Quantum Mutual Fund /AMC. The above information should not be constructed as research report or recommendation to buy or sell of any stocks. Past Performance may or may not be sustained in future.
  12. An Intelligent portfolio can be created from the broader Markets

    at reasonable Valuations 12 QLTEVF As % Of S&P BSE-30 Index S&P BSE-30 Index** Number of equity stocks 28 30 Median market capitalization (USD mn) 13,055 37% 34,922 Weighted dividend yield 1.7% 150% 1.2% Weighted PER: March 2023E 13.9x 74% 18.8x Weighted EPS Growth: March 2023E 8.6% 52% 16.7% PEG Ratio (excludes cash) 1.61x 143% 1.13x T12M PE 23.9x 60% 40.2x Weightage of stocks with PER > 20 69% 94% Weightage of stocks with PER > 30 48% 74.4% Source: Quantum AMC** S&P BSE-30 Index weight is based on free-float.. The figures mentioned in WTD PER, WTD EPS and PEG ratio are calculated on the basis of Bloomberg consensus estimates for companies owned by the Composite as well as the companies in the S&P BSE 30 as of the reporting date i.e. October 29, 2021. Past Performance may or may not be sustained in future
  13. 13 India’s Economy Will Grow > 6% p.a. 6.5% is

    a good long-term assumption; 8% is NOT a good long-term assumption! Real Grate across 10 governments has been 6.3% p.a. over the last 41 years DP growth Source: RBI and www.parliamentofindia.nic.in as of June 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 August 2021.
  14. The Hungry Consumers 14 Year (March end) 2-wheelers (Domestic sales

    Mn units) Cell Phone Connections (mn) Passenger Vehicles (Domestic sales Mn units) Refrigerators (Production Mn units) Cement (mn tn) Home loans outstanding (Rs. bn) 2008 8,064,903 225 1.55 6.14 174 2,603 2009 8,439,786 392 1.55 6.72 187 2,794 2010 10,511,009 584 1.95 8.00 207 3,009 2011 13,302,335 812 2.50 8.72 216 3,499 2012 15,384,261 919 2.63 9.91 230 3,971 2013 15,753,563 868 2.67 11.12 248 4,567 2014 16,890,778 905 2.50 10.65 256 5,386 2015 18,433,027 970 2.60 11.95 270 6,285 2016 18,938,727 1,034 2.79 11.86 283 7,468 2017 19,929,958 1,170 3.05 13.05 280 8,601 2018 23,007,691 1,183 3.29 13.50 298 9,746 2019 24,460,688 1,162 3.38 15.64 337 11,601 2020 20,936,201 1,158 2.73 15.0 334 13,498 2021 18,397,111 1,181 2.51 11.2 294 14,591 YTD 2022* 8,762,657 1,187 1.19 4.1 171 14,785 CAGR (2008 to 2021)** 6.5% 13.6% 3.8% 4.8% 4.1% 14.2% *2022 YTD data, Two-wheeler sales data as on September‘ 21, Passenger Vehicle sales Data as on September’ 21, Refrigerator data as on August’ 21, Cement sales data as on September’ 21, Housing loans data as on September’ 21, Latest cell phone connections data as on August’ 21 Source: 2 wheeler passenger vehicle and Cement – CMIE database; refrigerator production data – CMIE (IIP ) database, home loans outstanding – RBI Data on Sectoral deployment of bank credit (October 2021). ** Annualized Returns. Past Performance may or may not be sustained in future
  15. Don’t Be Distracted By Global Macro: Economic Activity Led To

    A 10x Growth In Earnings 15 Source: CLSA and Bloomberg Finance L.P., as of October 29, 2021 CY 21 and CY 22 are estimate numbers
  16. The Market Tends To “Catch Up/Down” To Earnings 16 Source:

    CLSA and Bloomberg Finance L.P., As of October 29, 2021 CY 21 and CY 22 are estimate numbers . Past Performance may or may not be sustained in future
  17. 17 Risks to the Recovery Low Vaccine coverage increases probability

    of a third wave. Festive season to start from Sep 2021 Job Losses amongst salaried employees and Rising Inflation may impact consumer discretionary spend Since the pandemic began, there has been a reduction in number of employed by 20 million Inflation in Raw materials and increase in Crude prices may force RBI to raise interest rates
  18. Keep 6-24 months of expenses in Liquid Fund, Bank Fixed

    Deposit to be withdrawn in case of emergency Trying to Time Markets is a Folly ₹ Please note that the above is the suggested fund allocation only and is not to be considered as investment advice / recommendation, please seek independent professional advice and arrive at an informed investment decision before making any investments • Liquid Fund/ Bank Deposit 6 - 24 months Expenses • 4-5 Diversified Mutual Funds Balance Surplus 80% - 85% • Gold/Gold ETF 15% - 20% Wealth Builder Stress case scenario Diversification 18 Simple Asset Allocation Strategy to Deal with Market Cycles
  19. Equity Investment is a bet on long term India Story

    & it looks bright 19 Summary Yes, Index is expensive, but opportunities are available in the broader market Earning growth is the long-term driver for equities & after a long time we are seeing earing upgrades Liquidity environment is benign. However, there could be event-based pause. Equity investment is a bet on long term India story & it looks bright There are risks but an intelligent portfolio can manage it well Asset allocation is the holy grail to deal with market cycles
  20. Product Label

  21. 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. 12th November 2021 Mutual fund investments are subject to market risks, read all scheme related documents carefully.
  22. Thank You 22