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Equity Markets: A Flattish year with devil in the details

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

Performance:
Duration Nifty Midcap 100 Nasdaq Composite Index Nifty Small Cap 100 Nifty 50 S&P 500 Index Dow Jones Indus. Avg
1 Month 6.19% 5.80% 5.10% 2.60% 0.25% -3.49%
1 Year 19.35% 7.07% 10.40% 11.76% 1.15% -0.25%

Source: Bloomberg

Duration Nifty Auto Nifty Realty Nifty FMCG BSE Midcap Nifty Midcap 100 Nifty IT BSE Small Cap BSE 250 Small Cap Nifty Small Cap 100 Nifty 50 S&P Bse Sensex Index Nifty Media Nifty Bank Nifty Metal Nifty Financial Services Nifty Commodities Nifty Energy Nifty Pharma
1 Month 7.66% 7.57% 6.75% 6.31% 6.19% 5.82% 5.56% 5.39% 5.10% 2.60% 2.47% 2.39% 2.07% 1.56% 1.48% 1.10% 0.59% -0.51%
1 Year 22.55% 16.30% 31.85% 17.09% 19.35% -1.21% 15.75% 17.26% 10.40% 11.76% 12.70% -14.46% 24.35% 10.45% 18.03% 6.72% -6.89% 0.59%

Source: Bloomberg. Data as on May 31st, 2023; Performance - Absolute returns

Equity Outlook

On the strength of significant FPI inflows, Indian markets continued to rise throughout the month. Markets increased regardless of capitalization or industry. Many equity markets experienced gains globally as well. Lower energy prices and the perception that the Fed's tightening cycle is about to come to an end may be contributing factors to the markets' current buoyancy. The month's news coverage was also dominated by concerns about the US debt ceiling, which were ultimately resolved to everyone's satisfaction by extending the cap and deadline to January 2025.

From the top-down perspective of a global investor, India's macroeconomic outlook has improved due to low energy prices, an improved trajectory for inflation, policy rates close to their peak, and fiscal and current accounts that appear to be in good shape. Indian markets are reasonable to reflect the 18-month time correction from a valuation standpoint as well. On the micro front, hopes for a consumer rebound in FY24 are also encouraging as the capex cycle keeps gaining steam. Although there is still some uncertainty surrounding the monsoons, current estimates are still in line with long-term averages.

In terms of the Indian economy, the 6.1% real GDP growth rate in Q4FY23 exceeded market expectations. Investment (GFCF) growth of 8.9% and net exports of 7% drive growth, while private consumption growth of 2.8% was subpar. The Indian economy expanded by 7.2% in FY23, with private consumption increasing by 7.5% (driven by 1HFY23 growth of 13.6%) and investment growing by 11.4% (GFCF).

Given how the Covid pandemic affected the growth trajectory in FY21, the economy has grown at a real GDP rate of 3.4% over the past four years. In contrast to FY22's nominal GDP growth of 18.4%, it was 16.1% in FY2023. In terms of corporate profitability, the Nifty-50 Index's 4QFY23 net profits increased 19% year over year. The Nifty-50's profits increased by 11.5% in FY23. In terms of profitability mix, banks have taken the lead, while metal companies have fared worse than in FY22.

Looking Ahead

We still hold the opinion that economic growth and fundamentals are still important in the medium and long term, even though Fed policy connections are still important for markets in the short term. Following a strong FY23, real GDP growth expectations for FY24 in India are currently around 6%. The Monsoon season, a slowdown in the global economy (exports), and the stance of the RBI's monetary policy are important variables to watch. As global asset allocators watch how asset allocation across countries plays out, FPI flows are more likely to drive Indian markets in the near future. Up until May, we had a period of consistent outflows, but since then, flows have been quite strong, causing markets to post healthy gains.

We still think that businesses with consistent earnings and cash flow are better investment prospects right now. Any change in RBI's stance on monetary policy could benefit the small cap segment.

In the past, we have observed that markets in a state of consolidation are may be the ideal time to invest in the equity asset class. Large, Mid, and Small as a category offer relatively comparable returns when investing over a period of three to seven years, especially when taking into account associated volatility.

However, mandates like Flexi Cap & Focused are could be best for investors if they trust a fund manager to make decisions in the large, mid, and small-cap segments.


Scheme strategy - Equity Schemes
  • Mahindra Manulife Multi Cap Fund
  • Mahindra Manulife Mid Cap Fund
    • This scheme would aim to invest in companies that demonstrate higher earnings growth outlook, potential of rerating or sectoral leadership position which can take advantage of the India’s growth story. The portfolio will invest predominantly in mid-cap stocks (>65%) 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.
  • Mahindra Manulife ELSS Fund
    • The portfolio has 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 Flexi Cap Fund
    • The Scheme follows top-down sector allocation and bottom-up stock selection ideas that may benefit based on health of economy. Allocation across market caps is a function of economic outlook, domestic liquidity and stage of market cycle. Focus will be on high quality, growth focused companies available at reasonable valuations.
  • Mahindra Manulife Consumption Fund
    • The portfolio is a thematic fund and aims to invest in companies which are expected to benefit from consumption led demand. Allocation will be across market caps and focus to invest in growth-oriented companies with strong financial strength available at reasonable valuations. Companies engaged in consumption and related sectors will have allocation of more than 80% in the portfolio.
  • Mahindra Manulife Large Cap Fund
    • The portfolio is a concentrated portfolio with a top-down approach 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 earnings growth potential, strong balance sheet and good governance.
  • Mahindra Manulife Large & Mid Cap Fund
    • The scheme focusses on investing in companies that have demonstrated strong leadership and sustained growth and continue to do so. The portfolio currently has around 49%,39% and 12% of net equity holdings in large, mid, and small cap respectively.
  • Mahindra Manulife Focused Fund

      The Scheme focuses on maintaining an appropriate diversified portfolio of companies with a medium-term perspective. The Scheme follows a top-down approach to select sectors and 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:

      1. Growth opportunities
      2. Cash flows generated and ability to finance the growth.
      3. Management quality to deliver the growth.
  • Mahindra Manulife Small Cap Fund
    • This scheme aims to invest in companies that demonstrate reasonable earnings growth outlook, balance sheet strength and a potential of rerating. The portfolio invests predominantly in small cap stocks (>65%) apart from some exposure to mid and large-cap stocks. The portfolio will be adopting predominantly bottom-up approach to investing.
Scheme Specific Strategies - Hybrid Schemes
  • Mahindra Manulife Equity Savings Fund

    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.
  • Mahindra Manulife Aggressive Hybrid Fund

    Equity:

    • Macro theme of the portfolio will be to identify the status of economy and invest in sectors with potential to outperform
    • Portfolio composition would have preference for companies with potential for earnings upgrade and possible valuation upgrades as well.


    Debt:

    • The Modified duration of the portfolio is around 3.00 years for the debt portion
    • The Scheme now had a larger allocation to gilts than credits and may maintain this stance in the near future
  • Mahindra Manulife Balanced Advantage Fund

    Equity:

    • Portfolio composition would have preference for growth style of investing with large cap bias
    • 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 2.79 years for the debt portion
    • The duration is built through exposure in 10-year/5-year Gilt
Bond And Money Market

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

Parameters 31th May 23 28st April 23 31th May 22
RBI Repo Rate % 6.50 6.50 4.40
5Y AAA PSU % 7.45 7.48 7.43
1 year CD % 7.34 7.46 6.29
10Y Gsec % 6.99 7.12 7.42
CPI (%) 4.70 5.66 7.79
IIP (YoY) % 1.14 5.56 1.85
US 10Y % 3.64 3.42 2.84
Dollar Rupee 82.73 81.83 77.64

Source: Bloomberg; Data as on May 31st, 2023.

It was a steady month with a softer rate bias for domestic fixed-income markets. The benchmark ten-year Gilt moved down by around 12 basis points (bps) to close at 6.99%, witnessing a one-year low. Yields softened across the yield curve, with the extremely short end reacting to the overall liquidity surplus in the banking system. Inflation measured by CPI fell to 4.70%, marked by a slowing momentum in the core inflation and a drop in food inflation.

The Q4 GDP of Fy 23 surprised on the upside and printed at 6.10%, thereby the real GDP for Fy 2023 growing at 7.2%. The strong print was a reflection of healthy Fixed capital formation and export growth. However, Private consumption continues to exhibit weak growth during the last financial year.

Looking Ahead
  • We believe that the Monetary policy of RBI will have an extended pause. Many global central bankers also seem to be in a pause, wait-and-watch mood. We believe that there could be an extended pause by the MPC. It raises the probability of a reversal in monetary policy action previously taken. History has a strange way of chiming, and it may be felt this time too.
  • Commodities (including agri commodities) and Crude continue to remain soft. Such softer bias leads to the possibilities of lower inflation bound, albeit lower than the RBI’s projection
  • With Urea prices coming off and an increased RBI dividend, the budgetary borrowing numbers may reflect a lower number as we go through the fiscal year
  • The softer bias in interest rates may well continue through this calendar year
  • The bear flattening of the yield curve, specially in the 1-5 year segment, has largely happened, hinting at the possible end of the upward movement of the domestic rate trajectory
  • We also believe that AAA credit spreads have increased yet remain richly valued based on historical measures.
  • With US Fed trying to engineer a soft landing to the economy, there has been historically no precedence of inflation remaining high after a recession, which possibly also bodes well for fixed income allocation
What should an investor do?
  • While there have been tax changes announced in the debt segment, we still believe, beyond the tax changes, the merit for debt mutual fund investments continues.
  • We believe that investors with a shorter time horizon of less than one year may continue investments in ultra-short-term and low-duration funds
  • Short term fund category may be suitable for investors looking to stay for a time horizon beyond one year with a lower-risk volatility
  • For investors who attempt to capture the interest rate cycles, an allocation to a Dynamic Bond fund merits attention

Source: RBI

Scheme strategy – Debt Schemes
  • Mahindra Manulife Low Duration Fund
    • The Residual Maturity is around 533 days
    • The annualised YTM of the portfolio is around 7.54%
    • With our view on Gsec possibly offering better opportunities than Bonds, we derive around 30% of our duration through Gsecs in this fund
    • We would remain skewed in this duration range with an upward bias
      • Potential Risk Classification (PRC)
      Potential Risk Class Matrix (Maximum risk the Scheme can take)
      Credit Risk Relatively Low (Class A) Moderate (Class B) Relatively High (Class C)
      Interest rate Risk
      Relatively Low (Class I) B-I
      Moderate (Class II)
      RelativelyHigh (Class III)
  • Mahindra Manulife Ultra Short Duration Fund
    • The Residual Maturity of the portfolio is around 140 days
    • We will remain in this maturity segment as we move ahead through the next month
    • The annualised YTM of the portfolio is around 7.35%
      • Potential Risk Classification (PRC)
      Potential Risk Class Matrix (Maximum risk the Scheme can take)
      Credit Risk Relatively Low (Class A) Moderate (Class B) Relatively High (Class C)
      Interest rate Risk
      Relatively Low (Class I) B-I
      Moderate (Class II)
      Relatively High (Class III)
  • 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
      • Potential Risk Classification (PRC)
      Potential Risk Class Matrix (Maximum risk the Scheme can take)
      Credit Risk Relatively Low (Class A) Moderate (Class B) Relatively High (Class C)
      Interest rate Risk
      Relatively Low (Class I) B-I
      Moderate (Class II)
      Relatively High (Class III)
  • Mahindra Manulife Dynamic Bond Fund
    • The annualised YTM of the portfolio has is around 7.30%
    • The Modified Duration of the portfolio (MD) increased to around 4.68
    • The Portfolio largely derives it duration from Gilts as we believe that the AAA credit spreads remain tight and may expand as we move ahead
      • Potential Risk Classification (PRC)
      Potential Risk Class Matrix (Maximum risk the Scheme can take)
      Credit Risk Relatively Low (Class A) Moderate (Class B) Relatively High (Class C)
      Interest rate Risk
      Relatively Low (Class I)
      Moderate (Class II)
      Relatively High (Class III) B-III
  • Mahindra Manulife Short Duration Fund
    • The annualised YTM of the portfolio is around 7.29%
    • The Modified duration of the portfolio is around 2.39 and we may keep this duration going ahead
    • Our portfolio continues to have a large allocation towards sovereigns, accounting for around 70% of the duration as we are wary of the spreads in AAA credit segment
      • Potential Risk Classification (PRC)
      Potential Risk Class Matrix (Maximum risk the Scheme can take)
      Credit Risk Relatively Low (Class A) Moderate (Class B) Relatively High (Class C)
      Interest rate Risk
      Relatively Low (Class I)
      Moderate (Class II) B-II
      Relatively High (Class III)
Scheme Name Product Suitability Scheme Riskometer Scheme Benchmark Benchmark Riskometers
Mahindra Manulife Multi Cap Fund
(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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
Nifty 500 Multicap 50:25:25 Index TRI
Mahindra Manulife Mid Cap Fund
(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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
Nifty Midcap 150 TRI
Mahindra Manulife ELSS Fund
(An open ended equity linked savings 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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
Nifty 500 TRI Index
Mahindra Manulife Flexi Cap Fund
(An open ended dynamic equity scheme investing across large cap, mid cap, small cap stocks)
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation.
  • Investment in diversified portfolio of equity & equity related instruments across market capitalization.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understand that their principal will be at Very High risk
Nifty 500 Index TRI
Mahindra Manulife Consumption Fund
(An open ended equity scheme following Consumption 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 consumption led demand in India.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
Nifty India Consumption TRI
Mahindra Manulife Large Cap Fund:
(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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
Nifty 100 Index TRI
Mahindra Manulife Large & Mid Cap Fund
(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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
Nifty LargeMidcap 250 Index TRI
Mahindra Manulife Focused Fund
(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 portfolio of maximum 30 stocks across market capitalziation.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very High risk
NSE 500 Index TRI
Mahindra Manulife Small Cap Fund
(An open ended equity scheme predominantly investing in small cap stocks)
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation.
  • Investment predominantly in equity and equity related securities of small cap companies.
Investors understands that their principal will be at Very High risk
S&P BSE 250 Small Cap TRI
Mahindra Manulife Equity Savings Fund
(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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Moderately high risk
Nifty Equity Savings Index TRI
Mahindra Manulife Aggressive Hybrid Fund
(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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Very high risk
CRISIL Hybrid 35+65 Aggressive Index
Mahindra Manulife Balanced Advantage Fund
(An open ended dynamic asset allocation fund)
This Product is suitable for investors who are seeking*:
  • Capital Appreciation while generating income over medium to long term.
  • Investments in a dynamically managed portfolio of equity and equity related instruments and debt and money market instruments.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understand that their principal will be at Very high risk
Nifty 50 Hybrid Composite Debt 50: 50 Index TRI
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 to page no. 33 of SID). A relatively low interest rate risk and moderate credit risk)
This Product is suitable for investors who are seeking*:
  • Regular Income over short term.
  • Investment in debt and money market instruments.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Moderate risk
CRISIL Low Duration Debt B-I Index
Mahindra Manulife Ultra Short Duration 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). A relatively low interest rate risk and moderate credit risk)
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.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Moderate risk
CRISIL Ultra Short Duration Debt B-I Index
Mahindra Manulife Liquid Fund
(An open ended liquid scheme. A relatively low interest rate risk and moderate credit risk)
This Product is suitable for investors who are seeking*:
  • Regular income over short term.
  • Investment in money market and debt instruments.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Low to Moderate risk
CRISIL Liquid Debt B-I Index
Mahindra Manulife Dynamic Bond Fund
(An open ended dynamic debt scheme investing across duration. A relatively high interest rate risk and moderate credit risk)
This Product is suitable for investors who are seeking*:
  • To generate regular returns and capital appreciation through active management of portfolio.
  • Investments in debt & money market instruments across duration.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Moderate risk
CRISIL Dynamic Bond B-III Index
Mahindra Manulife Short Duration Fund
(An open ended short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1 year and 3 years(please refer to page no. 36 of SID). A moderate interest rate risk and moderate credit risk)
This Product is suitable for investors who are seeking*:
  • Income over short to medium term.
  • Investment in debt and money market instruments.
  • Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Investors understands that their principal will be at Moderate risk
CRISIL Short Duration Debt B-II Index

Disclaimer

The views expressed here in this document 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 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 document 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 document, Mahindra Manulife Investment Management 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 the document are to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Readers of this document 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 its directors or associates shall be liable for any damages that may arise from the use of the information contained herein.

Cno.01595

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