Bond And Money Market

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

Parameters 30-Apr-19 29-Mar-19 30-Apr-18
RBI Repo Rate % 6.00 6.25 6.00
5Y AAA % 8.20 8.16 8.24
5Y AAA-5Y Gsec Spread bps*# 77 111 36
10Y Gsec % (old ten year) 7.41 7.35 7.77
CPI (%) 2.86 2.57 4.58
IIP (FYTD) % 4.0 4.4 4.3
US 10Y % 2.50 2.42 2.95
Japan 10Y % -0.04 -0.08 0.06
EUR 10Y % 0.01 -0.06 0.56

Source: Bloomberg; Data as on April 30th, 2019 | * bps - basis points below the table on debt market | #Gilt annualized

The benchmark 10-year gilt was broadly stable and yields inched up by around 6 bps to close at 7.41%. While the benchmark 10 year inched up marginally, the 5-year gilt rates moved up sharply during the month by around 35 bps. While the MPC did cut the repo rates by 25 bps (on expected lines), it did not change its policy stance. This led to a sharp selloff in the 5-year gilt and also the 5-year Overnight Index Swaps (OIS) too moved up sharply. The RBI announced an OMO auction during the month, which calmed the debt markets. Credit woes came back to haunt the market as an NBFC and its subsidiary faced downgrades.

Debt Markets

We think the benchmark 10-year gilt would continue to trade in a narrow band. The positive narratives around rates market appear to have stalled and thus the bias towards range bound movement appears likely. We continue to have a bias on AAA credits and well managed lower credit rating companies as credit spreads may narrow and normalize, with stability of the underlying gilt rates , thus offering investors a better risk return trade off.

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
  • Mahindra Credit Risk Yojana
    • We constructed a portfolio with a mix of AAA, AA and A+ rated papers
    • The Modified Duration of the portfolio is around 1.70
  • Mahindra Dhan Sanchay Equity Savings Yojana


    • The Modified duration of the portfolio increased to around 3.80
    • We continue to have asset allocation bias towards credits over gilts
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 1.3% 1.5% 1.4% -2.2% 0.7% 0.3% 7.3% -2.4% 3.9% 3.7% -3.1% 3.2% 0.7% -2.9% -2.0%
1 Year 11.0% 9.4% -28.2% 16.6% 17.6% 5.4% 19.4% -28.4% -18.2% -3.7% -19.8% 3.8% 19.8% -12.5% -20.5%
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 3.3% 4.5% 6.4% 2.9% 5.4% 7.9% 5.8% 3.9%
1 Year 9.9% 11.1% 15.5% -0.9% 1.1% -2.3% -0.9% -3.0%

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

Equity Market Update

April was a better month for investors around the world, with modest changes in the DOW Jones (+2.4%), S&P500 (+2%), FTSE (+2.2%), NIKKEI (+2.5%) and HANG SENG (+2.2%). The US Federal Reserve made no move on interest rates, as policymakers took heart in continued U.S. job gains and economic growth and held out hope that weak inflation will edge higher. European markets saw some gains during the month led by (1) encouraging euro zone data, indicating economic growth in the first quarter (2019) was much stronger than expected and (2) unemployment rate falling to its lowest in more than a decade.

India was a relative underperformer (SENSEX and NIFTY rose ~1% each respectively). However, Indian markets remained buoyant amidst election speculations, US-China trade negotiations and a dovish outlook from the US Federal reserve despite rising risks of a global slowdown as reflected in global bond yields.

The full-year (FY19) results will be declared over April-June 2019, which should give investors more clarity on the earnings trajectory. Some of the key near-term monitorables for the Indian markets are the (1) global crude prices reaching elevated levels from India’s CAD/BoP perspective and (2) rich valuations of the overall market, which would leave little room for any earnings or political disappointments. With the overall valuation of the key indices (NIFTY/SENSEX) is still above the long-term mean, we continue to believe that the future direction of the market is likely to be stock specific and earnings specific.

Scheme Specific Strategies For Equity Schemes
  • Mahindra Dhan Sanchay Equity Savings Yojana
  • Mahindra Unnati Emerging Business 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 that 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 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 is likely to invest in companies having one or more of the following - strong growth potential, 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 and deepening of the consumption basket of the country’s populace. 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 currently. 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:

    We endeavour to maintain a high conviction concentrated portfolio with a focus to generate alpha. We aim to have a concentrated portfolio of market leaders and established businesses. Currently the portfolio holds about 22 stocks.

    The portfolio follows a mix of top down strategy for sector selection and a bottom up strategy for stock selection. Portfolio follows a blended approach of value and growth styles.

Data Hangover
  • Domestic retail inflation came at 2.86% in the month of March 2019 –higher from 2.57% in February 2019. Core inflation was seen at 5.05% vs 5.5% month on month.
  • Industrial production based on the general index of IIP expanded by 0.1% year-on-year in February 2019. Production in the mining, manufacturing and electricity sectors recorded growth rates of 2.0 per cent, -0.3 per cent and 1.2% per cent for February 2019. Consumer durable goods output grew by 1.2% per cent as against growth rate of 7.5 per cent in the same month of the previous year. Non-durables grew by 4.3 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 52.7 for March vs 53.8 a month ago.
  • INR marginally depreciated in the month of April by ~0.7%. It was trading at 69.5/USD vs 69.1/USD, a month ago.
  • The trade deficit, gap between exports and imports, was at $10.9 billion in March 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.


Does PE Ratio Tell Us Anything About Value?

The Price to Earnings or PE ratio is a widely used valuation ratio. You would quite often hear people saying for instance, that ABC stock is cheap because it is at 10 x PE or XYZ stock is expensive as it is quoting at 20 x PE. But can someone, by just looking at the PE ratio, determine whether a stock is cheap or expensive?

Let’s look at a real-life example. In March 2003, Stock A was quoting at ~7 x PE while Stock B was quoting at ~21 x PE. Today, Stock A is down 85% from its March 2003 price, while Stock B is up by more than 20 x (~21% CAGR).

The point is – a stock may not be cheap at 7 x PE and at the same time a stock may not be expensive at 20 x PE. There is a lot of information in a PE ratio that the market is trying to convey.

The value of a business is the discounted value of all the free cash flow that the business can generate in the future. Let’s say, when XYZ stock is quoting at 20 x PE vs. 10 x PE for the company ABC, essentially you would be paying more for the future of XYZ than of ABC. When the stock is quoting at a given PE valuation, the market is inherently making certain assumptions about the future of the

For a stock quoting at a low PE ratio, the market is concerned about one of the following:

Low growth industry, limited scalability: If the business has limited growth potential or the industry in which it operates does not offer enough scalability, the future might not hold significant value.

No competitive advantage and at the mercy of the competition: If the company does not have a competitive advantage, the future visibility in terms of scalability and profitability of the business is clouded. As competition can severely impact future earning potential.

Corporate governance issue: As an investor, we are minority shareholders in a business. If history shows that the majority/promoter shareholder is not being fair to the minority shareholders by – siphoning out money from the business through related party transactions or other means, then even though the future of the business might have great value, but the same might not flow down equally to the minority shareholders. Also, if the past track record of the management shows frequent poor capital allocation through unwarranted diversification or expensive acquisitions, there would be difficulty in assigning value to future cash flows, as you would not know how the money would be deployed.

Technology or regulatory change: If there is a technology or regulatory change that is likely to affect the future of the business, the current low PE could in effect be reflecting this future structural change. Such businesses available at attractive PEs are the biggest value traps. E.g. MTNL in India, Kodak in the US.

For a stock quoting at a high PE ratio, the market is indicating all of the following (These are mostly reverse of above):

High growth or very long visibility of growth: The earnings are expected to grow rapidly or there is very high long term visibility of reasonable growth. The overall market opportunity could be big which could provide scalability potential.

Competitive advantage: The company has a competitive advantage which should help it sustain its scale and profitability and grow with or above industry rate.

No doubts on capital allocation and corporate governance: The majority/promoter shareholder is fair with the minority and there has been no past record of poor capital allocation, which raises concerns about future capital allocation.

The market does not perceive any technology or regulatory threat to scalability or profitability of the business.

Note the words underscored in the above points. For a low PE, the stock market might be concerned about any one of the points, while for a high PE the stock market is essentially indicating that it is confident about all the points mentioned.

If we disagree with the market’s assessment on the above points, we have an opportunity. If as an investor, we are able to find a low PE stock which does not have any of the concerns mentioned above, it could be a mispriced stock and could provide an opportunity.

At the same time, if a high PE stock has any issues with the above points, it should raise red flags for an investor. The PE ratio is an indicator that gives us information about the market’s perception of the business. We need to dig deeper to assess before agreeing or disagreeing with the market’s perception of value, rather than just looking at a headline PE ratio to say if the stock is cheap or expensive.


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. 00550

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