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.
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Investing When Valuations are High
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
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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
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performance and related data from time to time as may be required.
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12th November 2021
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