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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 28-Feb-20 31-Jan-20 28-Feb-19
RBI Repo Rate % 5.15 5.15 6.25
5Y AAA % 6.65 7.04 8.43
5Y AAA-5Y Gsec Spread bps# 35 30 110
10Y Gsec % 6.37 6.60 7.41
CPI (%) 7.59 7.35 2.57
IIP (FYTD) % 0.5 0.6 4.7
US 10Y % 1.15 1.51 2.72
Japan 10Y % -0.15 -0.07 -0.02
EUR 10Y % -0.61 -0.44 0.18

Bloomberg; Data as on February 28th, 2020, #Gilt Annualized

It was a global rush to the safer havens of gilt and the domestic debt markets followed the broader trends. The benchmark 10 year sovereign rates dropped sharply by around 23 basis points (bps) through the month before closing at 6.37. The credit markets, specifically the AAA credits too witnessed a sharp drop through the movement and almost mirrored the drop in gilt yields. As liquidity continued to remain in surplus mode, the money market rates too remained in an extremely benign zone.

Debt Markets

As we pen this newsletter, the US Fed has already cut the fed fund rates by 50 bps outside of the Federal Open Market Committee (FOMC) meetings. Such cuts beyond its FOMC meeting is a rare exercise and was last witnessed during the Lehman crisis. The US ten-year gilt fell below 1 % as a rush to safe haven was seen globally. Domestic 10 year gilts too eased to 6.23%.

We rarely build a forecasting tool based on a pandemic. While we believe that RBI may too take a cue from global central bank easing, what would could keep the market participants worried is a large fiscal stimulus to pump prime a weak economy. Should the extent of fiscal measures exceed the monetary stimulus reflecting a larger borrowing, the gilt rates may trend upward. We continue to believe that credits offer a better risk return tradeoff in the current situation.

Scheme Strategy - Debt schemes
  • Mahindra Liquid Fund
  • Mahindra Low Duration Bachat Yojana
    • The average maturity lowered to around 319 days in February
    • The YTM of the portfolio continues to fall and investors may continue to get benefit of falling rates through capital gains
    • We continue to be at the higher end of the permissible average maturity
  • Mahindra Ultra Short Term Yojana
    • The average maturity of the portfolio was 140 days
    • We may increase the average maturity as we move ahead
  • Mahindra Credit Risk Yojana
    • Credit Spreads continue to remain elevated and YTM of the portfolio has not eased
    • The Average Maturity of the portfolio was around 2 years
    • We may continue to take tactical approaches to duration in the future
    • We have exited our exposure to Yes Bank, in response to continued uncertainties around capital raising
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 -6.0% -6.4% -14.6% -5.5% -5.2% -4.8% -5.8% -9.0% -12.6% -8.4% -15.3% -6.9% -8.0% 5.6% -6.5
1 Year Performance 6.8% 3.8% -17.4% 8.8% 20.8% 0.2% -3.3% -32.2% -21.8% -8.8% 21.8% -14.7% -7.9% 2.0% 0.1%
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 -0.09% -0.08% -0.06% -0.07% -0.05% -0.05% -0.05% 0.02%
1 Year Performance -0.01% 0.07% 0.14% -0.04% 0.05% 0.07% 0.03% -0.06%

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

Equity Market Update

The equity markets globally were impacted as fears took centre stage about spread of Corona virus from China to a pandemic across globe. Quite a few countries in Asia, Europe and also USA reported cases of Corona virus. In terms of economic impact; the shutdown of economic activity in China has paralyzed the world trade. In past 2 decades; China has established itself as a factory for the world products and with this shut down many global supply chains have been disrupted across categories like electronics, cell phones, automobiles, pharmaceuticals, chemicals, metals etc. While China has indicated production activity started in later part of month it is still at low level of utilization. Equity markets across globe saw a sharp decline. The markets have been running into higher valuation trajectory since long on the back of global liquidity support by Central Banks and hopes of economic growth. The economic impact of virus has posed a serious challenge to global growth estimates and hence market had a sharp reaction with US markets dropping 10% in under 10 days. Indian markets too had a sharp decline with Nifty Index down -6.4%, NSE Midcap Index down -6.8 % and NSE Small cap index down -8.8%. While the economic consequences of Corona virus look grim in the near term;

the medium to long term throws open a good opportunity wherein the global firms are expected to review their excess reliance on China as base for production. Over past two decades we have seen a major jump in manufacturing exports from China as low cost of operations in China created a push by global firms to create a supply chain from there. Corona virus led shutdown has impacted the supply chain in a significant way and hence is likely to create a need for creating an alternate base outside China. India has already announced low tax rates for manufacturing activities. A combination of attractive tax rates; global firms need to diversify and similarity of vast pool of people can make India attract a lot of manufacturing activity that can help economy through job creation as well as forex savings. In terms of economic data for Q3FY20, India's GDP grew by 4.7% mainly led by a contraction in manufacturing sector output. GDP for Q2 FY20 was revised upward from 4.5% to 5.1%. The GST collection for January 2020 was at Rs1,054 Bn for January (Rs1,108 Bn in December 2019)—growth of 8.3% over January 2019. The Corporate earnings for Q3FY20 were on expected lines as expectations have been weak due to the ongoing demand slowdown.

Globally, there have been calls for rate reduction by Central banks as a strategy to reduce impact of slowdown post Corona virus. While we are writing this, US Fed has announced a 50 bps reduction in an emergency meet on March 3,2020. While rate cut can definitely help improve sentiments; the issue in past decade has been demand constraint and hence rate cut seems an appropriate strategy to boost demand. However, in a supply constraint led slowdown the efficacy of rate cut on economic activity is yet to be seen.

Scheme Specific Strategies For Equity Schemes
  • 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 Mutual Fund Badhat Yojana

    The scheme looks to invest in companies having one or more of the following attributes - high growth runway, robust return profile with well-established business moats and/or strong earnings visibility. The scheme would look to benefit from improving outlook for capex in the country as also widening of the consumption basket. Reduction in corporate asset quality challenges is another theme that the portfolio would look to benefit from.

  • 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 scheme has a focussed portfolio of around 30 stocks with a minimum 80% of the portfolio in top 100 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 focus on large caps as well as midcaps which are currently at 49% and 43% respectively.

Scheme Specific Strategies For Hybrid Schemes
  • Mahindra Dhan Sanchay Equity Savings Yojana
  • Mahindra Hybrid Equity Nivesh Yojana
    • The Modified duration of the portfolio increased slightly to around 4.50 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
    • 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.
Data Hangover
  • Domestic retail inflation rose to 7.59% in the month of January 2020 – from 7.35% in December 2019. Core inflation was seen at 4.19%.
  • Industrial production based on the general index of IIP de-grew by 0.3% year-on-year in December 2019. Production in the mining, manufacturing and electricity sectors recorded growth rates of -5.4 per cent, -1.2 per cent and -0.1 per cent. Consumer durable goods output de-grew by 6.7%. Non-durables grew by -3.7 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 56.3 in January 2020 vs. 53.7 in December 2019.
  • INR depreciated by more than 1.0% in the month of February. USDINR was seen trading at 72.18
  • The trade deficit, gap between exports and imports, was at $15.2 billion in January 2020. Cumulative value of exports for the period April-January 2019-20 was $265.3 billion down 1.9% year on year. Cumulative value of imports for the period April-January 2019-20 was $399 billion down 8.1% year on year.
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. 00694

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