Bond And Money Market

We present a matrix detailing movements in some key market rates (domestic and global) and key indicators:

Parameters 31-Mar-20 28-Feb-20 29-Mar-19
RBI Repo Rate % 4.40 5.15 6.25
5Y AAA % 6.80 6.65 8.16
5Y AAA-5Y Gsec Spread bps# 107 35 111
10Y Gsec % 6.11 6.37 7.35
CPI (%) 6.58 7.59 2.57
IIP (FYTD) % 0.5 0.5 4.4
US 10Y % 0.60 1.15 2.42
Japan 10Y % 0.00 -0.15 -0.08
EUR 10Y % -0.52 -0.61 -0.06

Source: Bloomberg; Data as on March 31st, 2020 #Gilt annualised

The month-end data may reveal a downward bias in rates. Yet, it hides the volatility in corporate bond rate movements through the month. In fact, it was perhaps the most volatile period of movements in corporate bond rates if one were to go through two decades of the domestic debt capital markets. But then a largely standstill economy is a rarity; and mirrors itself in all parts of the capital market.

In the second half of the month, there was a sharp increase in both money market as well as a corporate bond rates. What triggered such a sharp increase in credit rates was predominantly outflows witnessed in the mutual industry and a risk aversion. Money markets and corporate bond rates shot up by around 200 basis points (bps) with some AAA corporate bond rates moving much beyond 8% in the shorter- and longer-end of the yield curve. As the MPC announced a repo rate cut of 75 bps, a CRR cut of 1 percent (for a year) and a targeted buying of corporate bonds and commercial papers through a Targeted Long Term Repo Operations (TLTRO) program, the bond market stabilized and yields across the credit curve dropped sharply. However, the credit spreads increased in beyond 1-year segment of the credit curve because gilt rates dropped much more than credits. The money market too -- despite a deluge of liquidity -- faced a temporary dislocation with rates surging and lack of buyers. It also returned to its own and witnessed a sharp downward movement in rates with repo rate and CRR cut announcements.

Debt Markets

A period of “weeks where decades happen” makes a peep into the future much more difficult!

How does economy move from here after pandemic retreats and lockdown measures ease? Economists typically have had English alphabets to outline recovery trajectory; a U, L, V or a W-shaped recovery. They also added a “Nike swoosh” to the recovery pattern! Yet we would probably end only with the benefit of a hindsight. The outlook on gilts is a function of the extent of supply of gilts that has to be absorbed by the market and the RBI. While gilts may be a good tactical bet for a shorter time framework, as we move into a longer horizon of outcome, gilts may start underperforming credits. For credit spreads to contract, it is the trajectory of the economic recovery and a steady equity markets which would determine the outcome. We believe, while tactical bets for gilt maybe a trade for now, over a longer horizon of investments, credits may outperform gilts. The abundant liquidity could keep the money market rates extremely benign.

Scheme Strategy - Debt schemes
  • Mahindra Low Duration Bachat Yojana
  • Mahindra Ultra Short term Yojana
    • The average maturity of the portfolio moved up to about 187 days
    • The YTM of the portfolio moved up marginally to around 6.43%
    • The average maturity of the portfolio is at the higher end of the permissible average maturity
    • With surplus liquidity conditions we expect the money market rates to remain benign
  • Mahindra Liquid Fund
    • We continue to maintain a healthy mix of certificate of deposits and commercial papers
    • We will attempt to ensure adequate liquidity, safety and accrual
  • Mahindra Credit Risk Yojana
    • Credit Spreads continue to remain elevated and YTM of the portfolio has increased to around 9.20%
    • The Average Maturity of the portfolio was around 2 years
    • We may continue to take tactical approaches to duration in the future
    • We would refrain from adding lower rated credits for the moment and would wait for stability in markets and economy
Equity Markets

We present charts tracking domestic index and sector, and global indices movements:

India Index
S&P BSE SENSEX INDEX Nifty 50 Nifty Auto Nifty Bank Nifty Financial Services Nifty FMCG Nifty IT Nifty Media Nifty Metal Nifty Commodities Nifty Realty Nifty Pharma Nifty Energy BSE Midcap BSE Smallcap
1 Month Performance -23.1% -23.2% -31.5% -34.3% -31.3% -6.8% -16.1% -37.8% -29.4% -23.9% -37.4% -5.3% -18.5% -27.6% -29.9%
1 Year Performance -23.8% -26.0% -43.2% -37.1% -25.7% -9.9% -18.3% -58.3% -47.9% -36.7% -34.8% -23.2% -32.5% -31.7% -36.1%
World Index
DOW JONES INDUS. AVG S&P 500 INDEX NASDAQ COMPOSITE INDEX FTSE 100 INDEX CAC 40 INDEX DAX INDEX NIKKEI 225 HANG SENG INDEX
1 Month Performance -12.1% -11.1% -9.3% -15.5% -17.5% -17.4% -9.7% -11.3%
1 Year Performance -13.9% -7.3% 0.6% -23.6% -18.2% -14.8% -10.0% -20.2%

Source: Bloomberg; Data as on March 31st, 2020 | Performance - Absolute Returns

Equity Market Update

Globally, the sentiments for equity as an asset class are dominated by fear and hence we have seen the sharp fall in last 6 weeks. Fundamentally, the economic worries are an outcome of the Covid-19 and hence a safe assumption would be that some medical solution to Covid-19 is a necessary condition for market stability. The shutdown is seen by markets as an economic cost till the medical cure is found. As the cost estimates are high so has been economic policy responses. While markets globally have accepted monetary stimulus as a positive in past decade, the reaction to fiscal stimulus is unknown as it creates fear of inflation and/or higher taxes by government at a later stage.
Till the government does not pass benefits of lower oil prices to consumers, it does help reduce the fiscal deficit. Over a medium term, India is expected to emerge as a beneficiary of FDI as many global companies are likely to opt for an alternate production capability outside China as a part of their back-up strategies with lower tax rates in India as an added benefit.

Indian markets being globally linked (nearly 24% ownership by FPI’s as per Dec 31, 2019 shareholding pattern) will clearly follow the global moves. While the economic outlook in India looks weak in near term, the sentiments can rebound quickly based on how the shutdown is withdrawn by Government. In terms of actual economic activity, post the shutdown being lifted, we expect Indian economy’s growth leadership (both Moody’s and S&P estimates retain India’s absolute growth gap vis-à-vis global growth) regaining global investors attention due to low oil prices, positive demography and relatively high domestic orientation of economy. Till the government does not pass benefits of lower oil prices to consumers, it does help reduce the fiscal deficit. Over a medium term, India is expected to emerge as a beneficiary of FDI as many global companies are likely to opt for an alternate production capability outside China as a part of their back-up strategies with lower tax rates in India as an added benefit.

In terms of next 2-3 months, in addition to issues mentioned earlier, Indian equities will also be driven by corporate results for Q4FY20 and their guidance for FY21. We continue to monitor quality businesses which are available at reasonable valuations post the recent fall and look to add these on a bottom up evaluation. On a similar thought, we also believe that these 2-3 months are likely to offer good entry points for investors to increase their equity exposures. Post the recent correction, many large cap companies are available at reasonable valuations and hence we now prefer large cap as well as mid cap as a preferred investment option.

Scheme Specific Strategies For Equity Schemes
  • Mahindra Mutual Fund Badhat Yojana
  • Mahindra Unnati Emerging Business Yojana

    This scheme among other things would aim to invest in companies that have a strong product line and leadership position in that sector and that can take advantage of the India’s growth story. The portfolio will focus on mid cap stocks apart from some exposure to small and large cap stocks. The portfolio will have a mix of top down and bottom up approach to investing, depending on market conditions

  • Mahindra Mutual Fund Kar Bachat Yojana

    The portfolio will have allocation to stocks across market capitalization and may focus on companies that have the power to take advantage of the opportunities the economy offers. The stocks in the portfolio are likely to have a superior product line, manageable debt and leadership in their respective sectors.

  • Mahindra Rural Bharat and Consumption Yojana

    The portfolio is a focused portfolio with around 30 stocks. The aim of the portfolio is to have a rural bias and look for opportunities in rural consumption, rural infrastructure and rural lending.

  • Mahindra Pragati Blue Chip Yojana

    The portfolio is a focused portfolio with around 25 -30 stocks. A top-down approach would be adopted to identify sectors with potential across different periods based on emerging macro trends. In addition, a bottom-up stock selection would also be followed, to identify companies with good governance and strong leadership

  • Mahindra Top 250 Nivesh Yojana

    The scheme focusses on investing in companies that have demonstrated strong leadership and sustained growth. The portfolio has a focus on large caps and midcaps which are currently at around 51% and 45% of net equity holdings respectively.

Scheme Specific Strategies For Hybrid Schemes
  • Mahindra Hybrid Equity Nivesh Yojana
  • Mahindra Dhan Sanchay Equity Savings Yojana

    Equity:

    • The approach of the portfolio would be to minimize the volatility and provide steady returns.
    • The portfolio may have a large cap bias that focusses on growth stocks having reasonable valuations and value stocks having a near to medium term trigger.

    Debt:

    • The Modified duration of the portfolio has increased marginally is around 4.20
    • We may continue with the current split between credits and sovereigns
Webcast
Equity Market Outlook
Debt Market Outlook
Scheme Name Product Suitability Riskometer
Mahindra Liquid Fund
An Open Ended Liquid scheme
This Product is suitable for investors who are seeking*:
  • Regular income over short term
  • Investment in money market and debt instruments
Mahindra Low Duration Bachat Yojana
An open ended debt scheme - An open ended low duration debt scheme investing in instruments such that the Macaulay duration of the Portfolio is between 6 months and 12 months (Please refer page 29 of SID)
This Product is suitable for investors who are seeking*:
  • Regular income over short term
  • Investment in money market and debt instruments
Mahindra Ultra Short Term Yojana
An open ended ultra-short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 to 6 months (please refer to page no. 31 of SID)
This product is suitable for investors who are seeking*:
  • Regular income over short term
  • Investment in a portfolio of short term debt and money market instruments
Mahindra Credit Risk Yojana
An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds)
This Product is suitable for investors who are seeking*:
  • To generate regular returns and capital appreciation over medium term.
  • Investment predominantly in AA and below rated corporate bonds, debt, government securities and money market instruments while maintaining the optimum balance of yield, safety and liquidity.
Mahindra Mutual Fund Kar Bachat Yojana
An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation
  • Investment predominantly in equity and equity related securities
Mahindra Dhan Sanchay Equity Savings Yojana
(An open ended scheme investing in equity, arbitrage and debt)
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation and generation of income
  • Investment in equity and equity related instruments, arbitrage opportunities and debt and money market instruments
Mahindra Mutual Fund Badhat Yojana
Multi Cap Fund- An open ended equity scheme investing across large cap, mid cap, small cap stocks
This Product is suitable for investors who are seeking*:
  • Medium to Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives.
Mahindra Unnati Emerging Business Yojana
Mid Cap Fund – An open ended equity scheme predominantly investing in mid cap stocks
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives of mid cap companies.
Mahindra Pragati Bluechip Yojana
Large Cap Fund - An open ended equity scheme predominantly investing in large cap stocks
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives of large cap companies.
Mahindra Hybrid Equity Nivesh Yojana
An open ended hybrid scheme investing predominantly in equity and equity related instruments
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation and generation of income;
  • Investment in equity and equity related instruments and debt and money market instruments.
Mahindra Top 250 Nivesh Yojana
Large & Mid Cap Fund - An open ended equity scheme investing in both large cap and mid cap stocks
This Product is Suitable for investors who are seeking*
  • Long term wealth creation and income
  • Investment predominantly in equity and equity related securities of large and Mid cap companies.
Mahindra Rural Bharat Consumption Yojana
An open ended scheme following Rural India theme
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives of entities engaged in and/ or expected to benefit from the growth in rural India.

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them

The views expressed here in this material are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. This material has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While utmost care has been exercised while preparing this material, Mahindra Manulife Investment Management Private Limited [Formerly known as Mahindra Asset Management Company Private Limited] (Mahindra AMC) does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The data/statistics given in this material are to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Readers of this material should rely on information / data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Neither Mahindra Mutual Fund, Mahindra AMC nor Mahindra Manulife Trustee Private Limited [Formerly known as Mahindra Trustee Company Private Limited], its directors or associates shall be liable for any damages that may arise from the use of the information contained herein.

Cno. 00714

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.