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Bond And Money Market

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

Parameters 29-Nov-19 31-Oct-19 30-Nov-18
RBI Repo Rate % 5.15 5.15 6.50
5Y AAA % 7.15 6.95 8.64
5Y AAA-5Y Gsec Spread bps*# 94 63 64
10Y Gsec % (old ten year) 6.47 6.45 7.61
CPI (%) 4.62 3.99 2.33
IIP (FYTD) % 1.3 2.4 5.2
US 10Y % 1.78 1.69 2.99
Japan 10Y % -0.07 -0.13 0.09
EUR 10Y % -0.36 -0.41 0.31

Source: Bloomberg; Data as on October 31, 2019, * new benchmark #Gilt Annualized

It was a relatively calm month for domestic debt markets. The benchmark 10 year sovereign rates hovered in the range of 5-7 basis points (bps) through the month before closing at 6.46, almost similar to the previous month’s closing. The credit markets too witnessed a narrow band of movement through the month with a marginal sell off as the month ended. As liquidity continued to remain in surplus mode, the money market rates too remained in an extremely benign zone.

Debt Markets

The GDP numbers for the quarter have been printed at 4.50% real growth rate, one of the weakest in recent times. On a nominal GDP basis, the economy grew by 6.10 percent on a year on year basis. A stable crude oil movement and domestic currency also aids the decision of cutting rates. What continues to be worrisome is the spread difference between the benchmark 10 year and the repo rates at 130 bps, which also hinders the process of transmission. While we think a large part of the fall in GoI yields have played out, the spread differential between AA and AAA credits continue to remain elevated. We think that there exists a large amount of pessimism in this part of the credit curve. We think it may be time to start being skeptical on the extreme pessimism for non AAA assets as we think there lies interesting opportunities in that space.

Scheme Strategy - Debt schemes
  • Mahindra Liquid Fund
  • Mahindra Low Duration Bachat Yojana
    • The average maturity moved up to around 304 days in November
    • The YTM of the portfolios continue to fall, given investors may continue to get benefit of falling rates through capital gains
    • We have tactically increased our average maturity
  • Mahindra Ultra Short term Yojana
    • The average maturity of the portfolio was 148 days
    • As the portfolio was fully deployed, the average maturity increased
    • We may increase the average maturity as we move ahead
  • Mahindra Credit Risk Yojana

    Debt

    • Credit Spreads continue to remain elevated and YTM of the portfolio has not eased
    • The Average Maturity of the portfolio was around 2.22 years
    • We may continue to take tactical approaches to duration in the future
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 1.7% 1.5% -4.3% 6.3% 5.1% -4.2% -3.6% 2.7% 5.0% 0.0% 4.9% 4.0% -1.5% 1.5% 0.0%
1 Year Performance 12.7% 10.8% -12.8% 18.9% 24.2% 2.8% 2.5% -28.0% -17.0% 1.0% 21.6% -11.7% 13.3% 0.3% -6.0%
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 4.1% 3.8% 5.0% 2.5% 3.4% 3.3% 2.2% 0.2%
1 Year Performance 10.3% 14.3% 18.8% 6.4% 18.4% 18.0% 4.9% 1.7%

Source: Bloomberg, data as on November 29th, 2019 | Performance – Absolute Returns

Equity Market Update

November was a buoyant month for investors around the world, with monthly gains in the DOW Jones (+4%), S&P500 (+3.8%), FTSE (+1.5%), NIKKEI (+1.9%) and HANG SENG (+0.4%). Indian markets remained buoyant through the month with both headline indices recording new highs. Indian equity markets picked up on reasonably positive news during the month, such as (1) Supreme Court upholding the sanctity of the IBC process and affirming the primacy of the committee of creditors comprising financial creditors in resolutions under the IBC mechanism, (2) inclusion of NBFCs under the IBC mechanism, (3) cabinet approval for privatization of certain PSUs and (4) partial ‘resolution’ of certain stressed companies and groups (telecom sector, Essel Group). Mixed messages from the US President, on the persisting trade war between U.S. and China, continues to influence investors’ risk-taking appetite and remains an overhang on investor sentiment.

resolutions under the IBC mechanism, (2) inclusion of NBFCs under the IBC mechanism, (3) cabinet approval for privatization of certain PSUs and (4) partial ‘resolution’ of certain stressed companies and groups (telecom sector, Essel Group). Mixed messages from the US President, on the persisting trade war between U.S. and China, continues to influence investors’ risk-taking appetite and remains an overhang on investor sentiment.

Overall, the second quarter results (2QFY20) have been a tad weaker than expectations. While 2QFY20 net profits of the Nifty Index declined 3% YoY, EBITDA declined 6% YoY led by (1) sharp decline in volumes of automobile companies and (2) lower profitability in the case of metal and oil & gas companies. Reported net income of the Nifty Index declined 13% YoY and 12% QoQ. The YoY decline in profits is despite the lower corporate tax rate announced in Sep’2019. As overall valuations have increased, with investors getting more clarity on the earnings trajectory, we expect the future direction of the market to remain largely stock specific and earnings specific.

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

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

    Equity:

    Portfolio would have preference for growth style of investing. Bottom up approach would be adopted to identify companies that have ability to scale up, gain market share and/or are present in sunrise/high growth sectors.

    Debt:

    • The Modified duration of the portfolio is around 4.2 for the debt portion
    • The current asset allocation has a higher component of AAA credits to GoI securities
    • We intend to follow this strategy as we think credit spreads may contract
Data Hangover
  • Domestic retail inflation rose to 4.62% in the month of October 2019 – from 3.99% in September 2019. Core inflation fell substantially to 3.5%.
  • Industrial production based on the general index of IIP de-grew by 4.3% year-on-year in September 2019. Production in the mining, manufacturing and electricity sectors recorded growth rates of -8.5 per cent, -3.9 per cent and -2.6 per cent. Consumer durable goods output de-grew by 9.9%. Non-durables grew by -0.4 per cent.
  • The Nikkei India Composite PMI Output Index, a measure of private sector activity in both the manufacturing and services sectors, came in at 49.6 in October vs. 48.7 in September.
  • INR depreciated by more than 1.1% in the month of November. USDINR was seen trading at 71.74
  • The trade deficit, gap between exports and imports, was at $11 billion in October 2019. Cumulative value of exports for the period April-October 2019-20 was $185.95 billion down 2.1% year on year. Cumulative value of imports for the period April-October 2019-20 was $280.7 billion down 8.4% year on year.

Source: MOSPI, CGA, OEA

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 debt and money market 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 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. 00654

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