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?
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Asset Outlook and Economic View in the Current Market Scenario
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
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%
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
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
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
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
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
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.