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Bond And Money Market

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

Parameters 27-Nov-20 29-Oct-20 29-Nov-2019
RBI Repo Rate % 4.00 4.00 5.15
5Y AAA % 5.45 5.45 7.15
5Y AAA-5Y Gsec Spread bps# 31 21 94
10Y Gsec % 5.91 5.88 6.47
CPI (%) 7.61 7.34 4.62
IIP (FYTD) % -21.1 -25 1.3
US 10Y % 0.84 0.86 1.78
Japan 10Y % 0.01 0.04 -0.07
EUR 10Y % -0.57 -0.63 -0.36

Source: Bloomberg; Data as on November 27th, 2020 | #Gilt annualised

Debt Market Overview and Outlook

The benign bias of rates continued through the month of November. Large parts of money market yield curve traded below the reverse repo rates as they dropped by around 25 basis points (bps) through the month. The deluge of liquidity also kept the credit rates on the lower band and the rates drifted lower by around 10 -15 bps. The benchmark 10-year sovereign rate remained unchanged as inflation remained elevated at 7.61% with core inflation remained entrenched. Domestic GDP contracted by 7.50% in the second quarter of FY 21, a contraction much lower than the street expectation.

RBI in its December Monetary policy clearly continued its stance to keep rates low for the foreseeable future. While the argument in favor of the approach of the RBI signaling low rate environment remains in the construct of the current inflation being supply driven, persistence of such elevated inflation leading to an extended negative real interest rate regime would certainly worry market players

Scheme strategy – Debt Schemes
  • Mahindra Manulife Low Duration Fund
  • Mahindra Manulife Ultra Short Term Fund
    • The average maturity of the portfolio is around 157 days
    • We would maintain a similar maturity as we move ahead
    • The YTM of the portfolio is around 3.56 %
    • With surplus liquidity conditions we expect the money market rates to remain benign
  • Mahindra Manulife 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 Manulife Credit Risk Fund
    • We intend to hold the cash in the portfolio for some time in the future and redeploy the same as uncertainties recedes and investor confidence returns in debt markets
    • Credit Spreads continue to remain elevated for lower credit rated papers. The YTM of the portfolio has decreased to around 5.15 %. We would increase the YTM of the portfolio in a gradual manner as we initiate positions in credits mandated by the scheme objective
    • The Modified Duration of the portfolio is around 1.69
Looking ahead
  • We remain apprehensive of a gradual rate rise as we move through the next year. We believe that the markets are coat tailing the RBI, it risks ignoring a commodity prices rise induced inflation and a global risk on rally
  • Money market rates and AAA credits have rallied meaningfully in the last quarter. It has resulted a drop in Money market rates to below the reverse repo rates and also resulted in very tight spreads. The Money market rates appear to be richly priced now.
  • Liquidity being in sustained surplus mode, all short term categories would be an investor choice
Equity Market outlook and overview

We present a summary of changes in key Indian & Global equity indices.

S&P BSE Sensex Nifty 50 BSE Midcap BSE Small Cap Nifty Midcap 100 Nifty Small Cap 100
1 Month 11.4% 11.4% 13.5% 13.3% 15.5% 13.0%
1 Year 8.2% 7.6% 12.1% 24.4% 14.5% 13.0%
Dow Jones Indus. Avg S&P 500 Index Nasdaq Composite Index
1 Month 11.8% 10.8% 11.8%
1 Year 5.7% 15.3% 40.8%

Source: Bloomberg Performance - Absolute returns | Data as on 30 Nov, 2020

Equity Market Update

Globally, the equity as an asset class had an exceptional month with double-digit returns on key indices in many countries. Indian markets too joined the global party with large, mid and small-cap indices all posting double digit returns. Nifty gained 11.4%, while Nifty Midcap 100 and Nifty Small cap 100 indices gained 15.5% and 13%, respectively. Among large sectors in market; Financials, Commodities, Auto outperformed Nifty while IT, FMCG, Pharma & Energy underperformed Nifty. Sectoral indices in Indian markets have been having new leaders almost every month in what can be seen as quick sector rotation. India experienced a very strong month of FPI flows at over Rs 65,000 crore. A bulk of the flows were led by increase in India’s weight in MSCI Global Index. The market move has been led by strong flows that is a clear monitorable. We would also like to monitor the flows for passive (ETF) strategies vis-à-vis active (India-view driven) as they become available in a month or so.

Globally, the news-flow was dominated by outcome of USA elections with Joe Biden emerging as winner of the election. While the formal outcome of electoral votes is still expected in mid-December, the mood across USA shifted to focus on likely implications of having Joe Biden; a Democrat as the new President. The implications of a change in leadership are typically on the likely change in focus by the government in terms of sectors being chosen as a priority. We await the agenda to be laid out by new President and his team. Other set of news that dominated headlines were the spread in second phase of Covid infections in Europe and US on one hand and the development of vaccine by many pharma companies on the other hand. Pharma companies have announced intent to file the vaccine product for approval with drug regulators in December, 2020. Simultaneously, efforts have kicked in for manufacturing and distribution logistics that may be required once the vaccine is approved and available.

The Indian economy continued its path of normalisation with a significant improvement in economic data. GDP for Q2FY21 came in at de-growth of just 7.5% and this set the tone for some upgrades in GDP outlook for FY21. The consensus shifted towards de-growth of less than 10% post the release of Q2 numbers. The festive season too played out as per the optimistic expectations with a jump in retail spend as consumer sentiments showed marked improvement. The economic data for November too showed a YoY growth/flat trends on majority of high frequency indicators like demand for electricity/petrol/diesel, railway freight, GST collection, production of automobile, cement, steel, all in green. However, the services mainly travel and hospitality remains a bit of challenge as people are still staying safe by not venturing out much. We continue to monitor the trends there too.

The corporate results for Q2FY21 have been quite strong vis-a-vis the expectations. The corporate profits have been quite strong as they gained market shares over unorganised competitors as well as on strong cost-cutting. Indian corporates are likely to show a healthy profit growth vis-à-vis decline in GDP for FY21.

Scheme Specific Strategies for Equity Schemes
  • Mahindra Manulife Multi Cap Badhat Yojana
  • Mahindra Manulife Mid Cap Unnati 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 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 Manulife ELSS 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 Manulife Rural Bharat and Consumption Yojana

    The portfolio is a concentrated portfolio and aims to have a rural bias and look for opportunities in rural consumption, rural infrastructure and rural lending.

  • Mahindra Manulife Large Cap Pragati Yojana:

    The portfolio is a concentrated portfolio with 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 Manulife Top 250 Nivesh Yojana:

    The scheme focusses on investing in companies that have demonstrated strong leadership and sustained growth. The portfolio currently has around 51% and 41% of net equity holdings in large and mid cap respectively.

  • Mahindra Manulife Focused Equity Yojana:

    The Scheme will focus on creating an appropriate diversified portfolio of companies with a medium term perspective. The Scheme will follow a top down approach to select sectors and follow a bottom up approach to pick stocks across the sectors based on the quality of business model and quality of management. Quality of business model and quality of management will be assessed by evaluating past track record and/or future outlook. The selection of companies will be guided by a combination of one or more factors like: a) growth opportunities; b) cash flows generated and ability to finance the growth c) management quality to deliver the growth.

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

    Equity:

    • Portfolio composition 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 3.36 for the debt portion
    • The current asset allocation has a higher allocation to AAA credits than GoI securities
    • As AAA credit spreads have contracted meaningfully, we may change our portfolio allocation with a bias towards gilts
Looking Ahead

Globally, post the USA election outcome, sector rotation between value and growth is being actively debated. Historically, it is believed that monetary expansion favours growth strategies while fiscal expansion favours value strategies. The policy priorities laid down by new President would help decide the course of action on this front. Also, with elections over, we expect the fiscal stimulus to be cleared by policymakers in US. Resurfacing of Covid infections in Europe and US can threaten the market sentiments. We maintain that a fresh lockdown is not a variable being considered by market participants, globally. We have had few countries imposing fresh restrictions on economic activities in past week and hope this doesn’t spread to other countries.

The corporate results for Q2FY21 have been quite better than expected and the festive season has been good. The real test starts now to identify whether the last two-three months of demand rush was pent-up demand or a proof of resilient Indian consumers.

The month that went has been a special month driven by exceptionally high flows, aided by global sentiments as well as increase in MSCI weight for India. While it is really tough to anticipate flows, we believe there is a need to differentiate flows into passive (ETFs which are agnostic to economy and valuation) vs active (evaluation of growth and valuation). We believe there have emerged quite a few structural growth upside areas for India (low oil prices, potential to act as global supplier, domestic policies oriented at Atmanirbhar Bharat). However, the market volatility is likely to remain as quite a few variables move dynamically, and this volatility period may be utilised for increasing the asset allocations to equities through SIPs. Investors may also use the lumpsum route to top-up their SIPs during the fearful times amidst the volatility.

What should an investor do?

For investments in debt oriented products:

  • We believe that the investors with a shorter investment horizon may continue investments in ultra-short term and low duration funds
  • For a long investment horizon and with a suitable risk appetite, a small allocation to credit risk fund merits attention

For investments in equity oriented products:

  • Our view is that volatility may be here for some more time and SIP may be a good way to increase equity market allocations
  • We believe investors with shorter investment horizon and lower risk appetite, can go for arbitrage fund to hedge against volatility
  • Investors looking to invest for a longer period, can consider SIPs or STPs into focused, multicap or balanced funds based on risk appetite.
  • Investors looking for a better return opportunity and with a suitable risk appetite, may consider part allocation in the mid cap scheme as well.

Scheme Name Product Suitability Riskometer
Mahindra Manulife 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 Manulife Low Duration Fund
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 31 of SID)
This Product is suitable for investors who are seeking*:
  • Regular income over short term
  • Investment in debt and money market instruments
Mahindra Manulife Ultra Short Term Fund
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 Manulife Arbitrage Yojana
An open ended scheme investing in arbitrage opportunities
This Product is suitable for investors who are seeking*:
  • Income over short term
  • Income through arbitrage opportunities between cash and derivative market and arbitrage opportunities within the derivative segment.
Mahindra Manulife Credit Risk Fund
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 Manulife ELSS 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 Manulife Focused Equity Yojana
An open ended equity scheme investing in maximum 30 stocks across market caps (i.e Multi Cap)
This Product is Suitable for investors who are seeking*
  • Long term capital appreciation
  • Investment in equity and equity related instruments in concentrated profile of maxium 30 stocks across market capitalziation.
Mahindra Manulife 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 Manulife Equity Savings Dhan Sanchay 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 Manulife Multi Cap 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 Manulife Mid Cap Unnati 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 Manulife Large Cap Pragati 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 Manulife 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 Manulife Rural Bharat and 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) (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 Manulife Mutual Fund, the 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. 00869

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