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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 indicators:

Parameters 31-May-19 30-Apr-19 31-May-18
RBI Repo Rate % 6.00 6.00 6.00
5Y AAA % 7.50 8.20 8.58
5Y AAA-5Y Gsec Spread bps*# 57 77 36
10Y Gsec % (old ten year) 7.03 7.41 7.83
CPI (%) 2.92 2.86 4.87
IIP (FYTD) % 3.6 4.0 4.4
US 10Y % 2.12 2.50 2.86
Japan 10Y % -0.09 -0.04 0.04
EUR 10Y % -0.20 0.01 0.34

Source: Bloomberg; Data as on May 31st, 2019 | * bps - basis points below the table on debt market | #Gilt annualized

The debt markets moved with a sense of decisiveness. The benchmark 10-year gilt rates declined by 38 basis points (bps) to close at 7.03. The AAA 5 year corporate bonds rallied by around 70 bps and closed at 7.50. It also looked a global risk off trade; as US 10-year gilt also moved down by around 38 bps. The US China trade bickering led to a global equity and commodity sell off; and globally treasury assets rallied.
In the domestic money markets, there was a sharp downward movement as money market rates with rates moving down by around 70 bps through the month. As the chances of a possible rate cut and also liquidity measures by the RBI increased; the money market rates too moved down significantly.

Debt Markets

This is what we had commented last month. "The positive narratives around rates market appear to have stalled and thus the bias towards range bound movement appears likely." We had not seen this co sharp rally coming. While slowing Auto sales number were clearly a bother, the low print of the quarterly GDP number and commentary on consumption slowdown could tilt the scale in favor of a possible rate cut, and liquidity infusing measures by the RBI, as it meets in the first week of June. As the spreads between five-year AAA credits have shrunk substantially, non AAA spreads, which are still at historic highs, may start moving down.

As the street consensus has largely shifted to the possibility of rate cuts and possible liquidity surplus situation, debt markets look to be interesting times ahead.

Scheme Strategy - Debt schemes
  • Mahindra Low Duration Bachat Yojana
  • 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

    Portfolio Stats

    Modified Duration Average Maturity (Days) YTM (%)
    0.06 22.4 7.17%
  • Mahindra Credit Risk Yojana
    • The portfolio has a mix of AAA, AA and A+ rated papers selected through the Risk Guard Process^
    • The Modified Duration of the portfolio stands at 1.67
    • ^ Risk Guard Process: An internal research and process framework that focuses on quality of business, financials and management for security selection and monitoring

    Portfolio Stats

    Modified Duration Average Maturity (Days) YTM (%)
    1.67 2.05 9.68%
  • Mahindra Dhan Sanchay Equity Savings Yojana (DEBT):

    Debt

    • The Modified duration of the debt portion of the portfolio increased to around 4.40, while the average maturity is now at 5.7 years and YTM is at 8.18%.
    • We will gradually make the asset allocation between gilts and credits equal as our strategy of credits over gilt has largely played out
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 1.7% 1.5% -2.1% 5.4% 7.4% -1.6% -3.3% -8.5% -6.1% -0.1% 9.9% -10.1% 0.4% 1.4% 1.7%
1 Year 12.4% 11.1% -25.6% 16.4% 21.1% 3.6% 18.3% -30.7% -19.3% 0.0% -3.7% 2.9% 22.5% -5.7% -13.8%
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 -5.4% -5.3% -6.5% -2.7% -6.0% -3.6% -5.9% -8.7%
1 Year 3.1% 3.1% 1.7% -6.0% -2.8% -5.6% -5.7% -11.0%

Source: Bloomberg, data as on February 28th, 2020 | Performance - Absolute Returns

Equity Market Update

May was another largely weak month for investors around the world, with month-on-month declines in the DOW Jones (-7%), S&P500 (-7%), FTSE (-4%), NIKKEI (-7%) and HANG SENG (-9%). The decline in global equities started after President Donald Trump threatened to hike tariffs on $200bn worth of Chinese goods, as risks of a protracted trade war increased. The stocks sell-off further intensified, after Trump threatened applying a 5% to Mexican imports.

India was a relative outperformer (SENSEX and NIFTY rose ~2% each respectively). Indian markets remained upbeat driven by the re-election of the NDA government and with investors hopeful of strong reforms and stable policies from this government in its second term.

The fourth quarter results for FY 19s of Indian companies were encouraging on the whole. Net profits of the Nifty-50 Index rose 16.5% yoy led by a sharp swing in the net profits of the banking sector. Some of the key observations were - a) corporate banks made a reasonable recovery in profitability, b) auto segment/industry saw weak performance owing to tepid volumes and demand, c) consumer goods segment/industry saw modest volume growth, but performance at EBITDA level was subdued as rural demand was soft. With a challenging macro-economic outlook, investors would expect further policy reforms and monetary stimulus from the government / RBI. As the overall valuation of the key indices (NIFTY/SENSEX) is still above the long-term mean, we continue to believe future direction of the market will be stock specific and earnings specific.

Scheme Specific Strategies For Equity Schemes
  • Mahindra Dhan Sanchay Equity Savings Yojana (Equity):
  • Mahindra Unnati Emerging Business Yojana:
    • The portfolio will comprise of companies with strong industry leadership and high moat.
    • It is a well-diversified portfolio that looks to capture potential long term growth opportunities from across market caps.
    • Key Overweights sectors/industries include Industrial, Automobile and Consumer Goods vs the scheme’s benchmark
    • Key Underweights sectors/industries include Financial services, IT and Energy vs the scheme’s benchmark
    • The portfolio currently has a large cap bias and will look to tap potential upward movement in consumption trend and capex recovery
  • Mahindra Mutual Fund Badhat Yojana:
    • The portfolio looks to tap into emerging growth opportunities from across sectors stemming from under penetration, structural market share shifts and technology driven changes.
    • The scheme is currently positioned to aim to tap a possible capex recovery , widening of the consumption basket and reduction in corporate asset quality challenges
    • Key Overweights sectors/industries include Industrials and Banks the scheme’s benchmark
    • Key Underweights sectors/industries include NBCFs, IT and Energy the scheme’s benchmark
  • Mahindra Rural Bharat and Consumption Yojana:
    • It is a rural themed portfolio consisting mostly of quality companies that can benefit from rural transformation.
    • Key Overweights sectors/industries include Industrials, Automobiles and Consumer Goods vs the scheme’s benchmark
    • Key Underweights sectors/industries include Financial Services vs the scheme’s benchmark
    • The portfolio currently has 29 stocks and aims to benefit from increase in rural consumption, infrastructure and lending.
  • Mahindra Pragati Blue Chip Yojana:
    • This will aim to have a concentrated portfolio of market leaders and established businesses with good governance.
    • The portfolio will have measured exposure in other market caps for possible alpha generation.
    • Key Overweights sectors/industries include Industrials, Automobiles, Consumer Goods and Cement vs the scheme’s benchmark
    • The portfolio currently has around 25 stocks and aims to tap potential upward movement in consumption trend and a capex recovery
Data Hangover
  • Domestic retail inflation rises marginally to 2.92% in the month of April 2019 –higher from 2.86% in March 2019. Core inflation eases to 4.55% vs 5.05% month on month.
  • Industrial production based on the general index of IIP de-grew by 0.1% year-on-year in March 2019. Production in the mining, manufacturing and electricity sectors recorded growth rates of 0.8 per cent, -0.4 per cent and 2.2% per cent for March 2019. Consumer durable goods output de-grew by 5.1% per cent as against growth rate of 6.2 per cent in the same month of the previous year. Non-durables grew by 0.3 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 51.7 for April vs 52.7 a month ago.
  • INR marginally depreciated in the month of May by ~0.3%. It was trading at 69.7/USD vs 69.5/USD, a month ago.
  • The trade deficit, gap between exports and imports, was at $15.3 billion in April 2019. Cumulative value of exports for the period April-March 2018-19 was $331.02 billion up 9.06%. Cumulative value of imports for the period April-March 2018-19 was $507.4 billion up 8.99% y/y.

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 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 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. 00562

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