Debt Funds & Picks January 2017

Transcription

1 Debt Funds & Picks January 2017

2 Index Macro Wrap Debt Market Wrap Debt Market View Fund Recommendations Selection Criteria

3 India inflation softens further Consumer prices in India increased 3.41 per cent year on year in December of 2016, following a 3.63 per cent rise in November 2016 and below market expectations of 3.57 per cent. It is the lowest inflation rate since November A year ago, the inflation rate was higher at 5.61 per cent in the same period. The slowdown in inflation intensified in the last two months of 2016 as a demonetisation-led slump in The slowdown in inflation intensified in the last two months of 2016 as a demonetisation led slump in currency circulation dented consumption; it is reflected in the cooling down of inflationary pressure in food and discretionary consumer items.

4 Industrial production surprises positively India's industrial production rose sharply by 5.7 per cent year on year in November 2016, recovering from a downwardly revised 1.8 per cent drop in the previous month, and is far ahead of expectations. It was the highest reading since October 2015, mainly boosted by a rebound in manufacturing production (+5.5 per cent from -2.4 per cent in October 2015) and mining (+3.9 per cent from -0.7 per cent in October 2015). Also, the electricity output rose at a faster pace (+8.9 per cent from per cent in October). From April to November 2016, industrial production expanded by 0.4 per cent compared with a 3.8 per cent growth in the same period a year ago.

5 10-year bond movement

6 Debt Market Wrap Liquidity The interbank call money rate settled at 6.05% on January 13, 2017 as against 5.80% on December 9, Systemic liquidity remained in surplus for most of the week. The RBI held several reverse repo auctionstodrainexcessliquidity from the banking system. It also held auctions of cash management bills intraweek Some outflows related to indirect tax payments briefly pushed up the call money rate.

7 Debt Market Wrap Bonds movement The yield of the 10-year benchmark 6.97% 2026 paper settled at 6.42% on January 13, 2017 as against 6.44% on December 9, 2016 in spite of lower than expected inflation and healthy IIP figures fuelling hopes of a rate cut by RBI in February. Bond prices came under pressure early last week as strong US non-farm payrolls data fuelled concerns of monetary policy tightening by the US Federal Reserve (Fed). Prices rose slightly intraweek tracking a fall in the US benchmark treasury yields following US President Donald Trump s media briefing. Market sentiment was also dented as the RBI partially devolved one of the securities up for auction onto primary dealerships in the previous week s Gilt sale. On the other hand, reports that the centre may stick to its fiscal roadmap in FY2018 mitigated the pressure on bond prices during the week.

8 Debt Market Outlook View bond yields to remain soft: We believe that bond yields would remain soft as there is room for further rate cuts by RBI after the easing of inflationary pressure and the expectations of policy measures to boost industrial activity. Consensus is factoring a policy rate cut of around 50 basis points over the next few quarters. Strategy better risk-reward in accrual funds (funds that take corporate credit risk): We would suggest a mix of 70:30 allocation mix between short-term/accrual and duration funds

9 Recommendations & Performance: Accrual/Short-term funds Scheme Name Accrual/Corporate Credit Category Exit Load Simple Annualised (%) CAGR(%) 14D 1M 3M 6M 1Yr 2Yr 3Yr 5Yr Birla Sun Life Medium Term Plan - Growth Less than 1 Year Exit Load is 1% DSP BlackRock Income Opportunities Less than 1 Year Exit Load is 1% Growth Accrual Kotak Income Opportunities Fund Growth Less than 1 Year Exit Load is 1% HDFC Medium Term Opportunities - Growth Exit Load is Nil Birla Sun Life Short Term Fund - Reg Growth BNP Paribas Short Term Income Fund Growth Indices Short Term Exit Load is Nil Exit Load is Nil Crisil Short Term Bond Fund Index Performance as on January13, 2017

10 Recommendations & Performance: Duration funds Scheme Name Simple Annualised (%) CAGR(%) Exit Load Duration Fund 1M 3M 6M 1Yr 2Yr 3Yr 5Yr Birla Sun Life Dynamic Bond Fund - Ret - Growth Less than 3 Month, Exit Load is 0.5% Reliance Dynamic Bond Fund - Growth Less than 1 Year, Exit Load is 1% SBI Magnum Gilt STP - Growth Exit Load is Nil HDFC Gilt Fund - S T P - Growth Exit Load is Nil Indices Crisil Composite Bond Fund Index Performance as on January13, 2017

11 Fund picks: Across categories Ultra short-term t funds Ultra Short Term Scheme Name Exit Load Simple Annualised (%) CAGR(%) 7D 14D 1M 3M 6M 1Yr 2Yr 3Yr 5Yr Birla Sun Life Savings Fund - Reg - Growth Exit Load is Nil ICICI Prudential Flexible Income Plan - Reg - Growth Exit Load is Nil IDFC Ultra Short Term Fund - Reg - Growth Exit Load is Nil Index Crisil Liquid Fund Index Liquid funds Scheme Name Simple Annualised (%) CAGR(%) Exit Load Liquid Fund 7D 14D 1M 3M 6M 1Yr 2Yr 3Yr 5Yr Axis Liquid Fund Exit Load is Nil HDFC Liquid Fund - Growth Exit Load is Nil BNP Paribas Overnight Fund - Growth Exit Load is Nil Index Crisil Liquid Fund Index Performance as on 13 h January,,2017

12 Annexure: Criteria for Scheme Selection Selection among the top rated 4-5 AMCs with a proven track record in debt Selection out of this lot, unless a strategy is compelling based on interaction with a AMC outside of this universe Track record of at least 2 years of existence for the fund though there couldbesomeexceptionsattimes Threshold AUM of at least Rs200 crore and above, though at times strategy would merit consideration as an exception Superior risk-adjusted returns

13 Disclaimer This document has been prepared by Sharekhan Limited (Sharekhan) and is meant for sole use by the recipient and not for circulation. The information contained in this report is intended for general information purposes only. The information published should not be used as a substitute for any form of investment advertisement, investment advice or investment information. The information in this report has not been prepared taking into account specific investment objectives, financial situations and needs of any particular investor, and therefore may not be suitable for you. You should verify all scheme related information before relying on it. Further, the selection of the Mutual Funds for the purpose of including in the indicative portfolio does not in any way constitute any recommendation by Sharekhan Limited with respect to the prospects or performance of these Mutual Funds. We recommend investors to seek advice from professional financial advisors. Mutual funds, like securities investments, are subject to market and other risks and there can be no assurance that the objectives of any of the schemes of the Fund will be achieved. Please read the Offer Document carefully in its entirety prior to making an investment decision The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. Sharekhan shall not responsible or liable for any loss or shortfall incurred by the investors. Investors are not being offered any guaranteed or assured rate of return through this document. Sharekhan and/or its associates receive commission for distribution of Mutual Funds from various Asset Management Companies (AMCs) and the details of the commission rates earned from various Mutual Fund houses is available on our website. Sharekhan or its associates may have received commission from AMCs whose funds are mentioned in the report during the period preceding twelve months from the date of this report for distribution of Mutual Funds. Sharekhan also provides stock broking services to institutional clients including AMCs and hence may have received brokerage for security transactionsti done byanyof the above AMCs during the period preceding twelve months from the date of this report. Compliance Officer: Ms. Namita Amod Godbole; Tel: ; compliance@sharekhan.com Contact: myaccount@sharekhan.com