Investing When Valuations are High

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Investing When Valuations are High
Speaker Mr. Sorbh Gupta, Fund Manager
Equities November 12th, 2021
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Vertical Takeoff after the Covid Scare
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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
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PER Elevated Will Markets Deliver on Elevated
Expectations?
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Source Bloomberg Finance L.P., as of October 29,
2021. Past Performance may or may not be
sustained in future.
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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 4
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Corporate Profits at an all time High,
Expectations of Strong Demand Rebound
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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.
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Demonetization, GST, Covid Large Companies
Getting Larger
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Listed Company Growth YoY
Industry Growth YoY
20 15 10 5 0 -5 -10 -15 -20 -25 -30
16
14
14
9
6 5
6
3
3
-1
-5
-7
-8
-12
-13
-15
-16 -17
-18
-25
Paints
Steel
Cement
Ceramic tiles
Passenger cars
CV
Bank Credit
AMC AUM
Gen. Ins. Premium
Two-wheelers
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
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Strong Flows Fed Tapering Could Act As Pause Not
a Full Stop
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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 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.
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Domestic Institutional Flows Come Back After
Second Wave ebbs Improvement in Employment
Levels
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Source CLSA and Bloomberg Finance L.P., as of
October 29, 2021
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Scenarios To Ponder
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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
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Markets are Heterogeneous Well, Most Of The Time
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Securities Name YTD 2021 CY 2020 CY 2019 CY 2018 CY 2017 CY 2016 CY 2015 CY 2014 CY 2013 CY 2012 CY 2011 CY 2010 CY 2009
BSE-30 INDEX SP 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 SP 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 SP 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 SP 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 SP 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 SP 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 SP 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 SP 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 SP 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 SP BSE India OilGas 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 SP 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 SP 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 SP 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 SP 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 SP 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 SP 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
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.
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Careful Stock Selection Looking Beyond Noise is
Extremely Important
SP BSE-30 Index surpasses previous peaks in INR
and USD terms
Real estate remains an opaque business DLF
Unitech performed well in 2007, not over long
run
ICICI has done well, but still lags the more
prudent HDFC Bank since January 2007
Boring retailer Trent has soared compared to
the more flamboyant and leveraged Pantaloon
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.
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Source Bloomberg Finance L.P., data as of
October 29, 2021
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An Intelligent portfolio can be created from the
broader Markets at reasonable Valuations
QLTEVF As Of SP BSE-30 Index SP 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 gt 20 69 94
Weightage of stocks with PER gt 30 48 74.4
Source Quantum AMC SP 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 SP BSE 30 as of the reporting
date i.e. October 29, 2021. Past Performance may
or may not be sustained in future 12
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Indias Economy Will Grow gt 6 p.a.
Real Grate across 10 governments has been 6.3
p.a. over the last 41 years DP growth 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 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.
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The Hungry Consumers
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
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Dont Be Distracted By Global Macro
Economic Activity Led To A 10x Growth In Earnings
Source CLSA and Bloomberg Finance L.P., as of
October 29, 2021 CY 21 and CY 22 are estimate
numbers
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The Market Tends To Catch Up/Down To Earnings
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
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Risks to the Recovery
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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
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Trying to Time Markets is a Folly Simple Asset
Allocation Strategy to Deal with Market Cycles
6 - 24 months Expenses

• Liquid Fund/ Bank Deposit

Balance Surplus? 80 - 85

• 4-5 Diversified Mutual Funds

Wealth Builder
Stress case scenario Diversification

• Gold/Gold ETF

15 - 20
Keep 6-24 months of expenses in Liquid Fund, Bank
Fixed Deposit to be withdrawn in case of emergency
Please note that the above is the suggested fund
allocation only and is not to be considered as
investment advice / recommendation, please seek
independen1t8professional advice and arrive at an
informed investment decision before making any
investments
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Summary
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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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Product Label
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Thank You
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