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
2
Equity Outlook
3
Covid 19 Second Wave Wanes, Vaccination Pace
Slow

• New covid cases has seen a sharp deceleration
  post a very severe second wave. Most state
  governments are gradually reducing restrictions

India -Daily New Covid Cases
India- Daily Vaccine Doses Administered
450,000
7,000,000
400,000 350,000
6,000,000
300,000
5,000,000
250,000 200,000
4,000,000
3,000,000
150,000
100,000
2,000,000
50,000
1,000,000
0
0
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
January-21
February-21 March-21
April-21
May-21
June-21

• 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

Source Bloomberg. As on 30th June 2021.
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
Corporate Profits at an all time High,
Expectations of strong demand rebound
5

• Corporate profitability hit a record in Q4FY21
  driven by strong revenue growth and strict
  control on costs .

Source CMIE- Economic Outlook

• Demand is expected to rebound post unlock driving
  sales, but higher input costs and normalizing
  other costs may see profit growth lag revenue
  growth

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
Quarters 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!
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
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
10
Indias Economy May Grow gt6 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
Period Net Foreign Activity (USD bn) Net Local Activity (USD bn) Total Activity (USD bn) Change in SP 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
Source Sebi.gov.in, NDSL, As of June 30, 2021
12
Quantum Long Term Equity Value Fund
13
Quantum Long Term Equity Value Fund A Must have
Equity Diversified Fund
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, Childs Education, Childs 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

14
Portfolio Outlook
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

15
2021 Boom Bust, Evenly Poised
15

• Boom
• Real economic activity continue to revive
  corporate earning upgrade happen
• Real estate revives stamp duty cut, lower intere
  st 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

16
Fixed Income Outlook
17
Interest Rates at Historic Lows
10 year Gsec
1 year Gsec
10.0
8.0
6.0
4.0
2.0
Source Bloomberg Quantum Research, Data as of
30th June 2021 Past performance may or may not
sustained in future
18
Government Borrowing to Remain Elevated
Gross borrowings
Net market borrowing
14000 12000
Borrowing Amount in INR Billion
Govt Borrowings jumped after
10000
Covid-19
8000 6000 4000 2000 0
FY15
FY16
FY17
FY18
FY19
FY20 2021 2022 BE Source CMIE,
Indiabudget.gov.in, Quantum Research
19
Das PUT in Action
RBI's Bond Buying
5.0 4.0 3.0 2.0 1.0 0.0 -1.0
Amount in Rs. Trillion
FY 2016 FY 2017 FY 2018 FY 2019 Gross
Purchase Net OMO
FY 2013
FY 2014
FY 2015
FY 2020
FY 2021
FY 2022
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
CPI-Headline
Core-CPI
8.0
6.0
4.0
2.0
0.0
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
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
India Sovereign Yield Curve
7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0
3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 1
4Y 15Y 19Y 24Y 30Y







26-J ul-21
26-J ul-21
31-De c-19
31-De c-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
Crisil Composite Bond Index
16.0
1 year Return
14.0
3 Years Annualised Return
12.0 10.0 8.0 6.0 4.0 2.0 0.0
2011
2012
2013
2014
2015
2016
2017
2018 2019 2020 2021 Source AMFI Portal, Quantum
Research, data as of 30th June 2021 Past
performance may or may not sustained in future
24
Credit Risk???
Losses Are Generally Non- Recoverable

• credit defaults causes permanent damage to
  portfolio

Contagion Risk

• stress in a small pocket can cause system wide
  problem

Illiquidity

• difficult to sell to meet heavy redemptions or
  churn portfolio

Unfavorable Risk Returns Dynamics

• upside is limited but downside could be severe

• Low grade debt tends to struggle in slow economy
  weak equity markets

No Diversification
25
a Barbell Strategy
Presenting
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 go down
If interest rate expected to rise
Focus on protecting value
Focus on capital appreciation
Invest in short term securities to make the
portfolio less sensitive to rising interest rate
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
1600 1400
US Money Supply - M2
Gold Prices
1200 1000 800 600 400 200
Rebased 100
0
1974
1977
1981
1985
1989
1993
1997
2001
2005
2009 2013 2017 2021 Data as of April 2021
Source fred.stlouisfed.org Past performance may
or may not sustained in future
31
Headwind Optimism leads to risk on rally
31

• Improving macroeconomic situation isnt good
  news for gold risk appetite is improving

• Progress on vaccinations around the globe
• and reopening of economies

SP 500
Data as of July 25, 2021 Source Investing.com
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?
32
Headwind Change in Fed stance
32

• With inflation raging, the Fed has to show
• awareness

• The US central bank signaled it will raise rates
  earlier than planned in 2023.

Percent change in US Consumer Price Index from a
year prior
Data as of May 2021. Source Statista.com
Data as of 23 July 2021. Source
fred.stlouisfed.org
Premature tightening could throw economic
recovery off track
33
Tailwind Virus Mutations Poor Vaccine Policy
33

• 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
Tailwind Inflationary pressure likely to persist
34
Percent change in Consumer Price Index from a
year prior
Data as of December 2020. Source
fred.stlouisfed.org, lynalden.com
Data as of April 2021. Source fred.stlouisfed.org

• If inflation is transitory, one should not expect
  significant rate hikes as Fed wouldnt 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

• Even if the Fed tightens credit, the US Government
  continues to pursue highly inflationary policies

35
Golds fundamentals remain supportive
35

• Accommodative Central banks

• Economies will need Government support in form of
  higher spending
• US to soon unveil a massive infra spending
• A weaker dollar

• 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
• Central Bank balance sheet Total Assets

Real interest rates will continue to be under
pressure
Trillion 10
12
2250
9 8 7 6 5 4 3 2 1 0
10
2000
8
1750
6
1500
4
1250
USD

2
1000
0
750
-2
500
-4
250
-6
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2017 2018 2019 2020 2021 US -FED JAPAN - BOJ EU
-ECB CHINA - PBOC Data as of June 2021. Source
Bloomberg
Gold price
US Real interest rate
Data as of June 2021. Source Bloomberg
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 March 2021. Source fred.stlouisfed.org
Data as of September 2020. Source
fred.stlouisfed.org
37
What should investors do
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
• Dont go overboard Maintain 10-15 allocation to
  the portfolio diversifier via Gold ETFs

38
Asset allocation
39
Asset Class Outlook for 2021 if Covid-19 Recedes
Equities gt Debt, Gold
Central banks stay accommodative for some time
before tapering
Corporate and government balance sheets improve
Strong wave of spending
Increase in inflation
Equities
Equities
Equities
Equities
Debt
Debt
Debt
Debt
Gold
Gold
Gold
Gold
40
Asset Class Outlook for 2021 if Covid-19 Lingers
Debt, Gold gt Equities
Lower taxes, lower GDP and higher spending will
increase Government deficit
Recessionary conditions less spending
Central Banks stay accommodative to boost growth
Liquidity will lead to asset price inflation
Equities
Equities
Equities
Equities
Debt
Debt
Debt
Debt
Gold
Gold
Gold
Gold
41
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
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
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
The most diversified strategy yields similar
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
returns with the lower volatility, compared to a
pure equity strategy
42
Quantum Multi Asset Fund of Fund
An example of dynamic asset allocation
Equity allocation
Sensex TRI
90000
65.00
60.00
75000
55.00
60000
50.00
45000
45.00
40.00
30000
35.00
15000
30.00
0
25.00
Data as of June 2021 Source Quantum MF Note
Past performance may or may not be sustained in
future.
43
2021- A Simple Asset Allocation Strategy to Deal
with Market Cycles
44

Solutions to meet Sustainable Development Goals
SGD-17
SMILE
WHAT IS SMILE?
THE SMILE STORY
OUTCOME SO FAR
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
SMILE enables Quantum MF investors to contribute
10 of their investment in eligible schemes to
charities vetted by HelpYourNGO
45
SMILE Process Flow
DONATION RECEIPTS HelpYourNGO sends donation
receipts and 80G Liaises with NGO grantees
Monitors reviews
DONATE TO NGOS
INVEST IN SMILE FACILITY 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
Q Stands for Quantum for scheme names
Investors receive periodic program reports from
HelpYourNGO on the NGOs supported by them
46
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The data in this presentation are meant for
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prepared on the basis of publicly available
information, internally developed data and other
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has been suggested or offered based upon the
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