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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 29-Oct-20 30-Sept-20 31-Oct-19
RBI Repo Rate % 4.00 4.00 5.15
5Y AAA % 5.45 5.90 6.95
5Y AAA-5Y Gsec Spread bps# 21 44 65
10Y Gsec % 5.88 6.02 6.45
CPI (%) 7.34 6.69 3.99
IIP (FYTD) % -25 -29.2 2.4
US 10Y % 0.86 0.69 1.69
Japan 10Y % 0.04 0.01 -0.13
EUR 10Y % -0.63 -0.53 -0.41

Source: Bloomberg; Data as on October 29th, 2020 | # Gilt annualised

Debt Market overview and outlook

Green Shoots Need Fiscal Stimulus

For the want of a better expression, we fall back upon the phrase “unprecedented“ to describe the outcome of the MPC (Monetary Policy Committee) meeting which was held in the second week of October. While the MPC met with the three new external members, it chose to keep the policy rates unchanged. Yet three elements from the monetary policy statement and the Governor’s speech merit attention:

a) The future stance of the monetary policy was deemed to be accommodative through the next financial year. RBI has rarely given such a long forward guidance of its policy stance.

b)The RBI governor also remarked that the orderly evolution of the yield curve was a “public good” and that the market participants and RBI had shared responsibility in this regard.

c) A thinly veiled moral persuasion of better bidding in the government borrowing program wherein the Governor remarked that the market participants should take a broader time perspective and display a receptive behavior that reflected sensitivity to the signals from RBI.

The RBI Governor did successfully talk down the market and the street took the hint of RBI’s intent to keep rates low for the foreseeable future. The RBI also decided to conduct OMOs in state government securities (SDL) and this brought down yields on SDL sharply. Taking cues from RBI’s intent, yields softened across credits and gilts with 5-year AAA-rated credits yields easing by around 45 basis points (bps) and the 10-year gilt easing by around 15 bps through the month. The money market rates too eased through the month with yields easing by around 5-15 bps across the tenor. Inflation measured by CPI inched up to 7.34%, which was ignored by the street as it viewed this high inflation as transient.

  • RBI has clearly spelt its stance to keep rates low for the foreseeable future. It may be following a global playbook of keeping a low (suppressed) interest rate environment despite a potential high inflation. 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 beyond December would certainly worry market players
  • We remain extremely apprehensive of a gradual rate rise as we move through the next year. An unchanged borrowing program of the Government of India remains positive for the bond markets, we believe that the markets are ignoring a commodity prices rise-induced inflation and a global risk-on rally
  • We would be careful on supply constraint-induced commodity inflation
  • While AAA-rated credits have rallied meaningfully in the last quarter, we believe a large part of the rally was the LTRO-induced. As banks gradually move away from the LTRO buying, it would be interesting to watch the trajectory of AAA credits. The further drop in yields of AAA credits have made the AAA credit spreads very tight and they appear to be richly priced now
  • Liquidity being in sustained surplus mode, all short-term categories would be preferred by investors

Scheme strategy – Debt Schemes
  • Mahindra Manulife Low Duration Fund
  • Mahindra Manulife Ultra Short Term Fund
    • The average maturity of the portfolio is around 145 days
    • We would maintain a similar maturity as we move ahead
    • The YTM of the portfolio is around 3.93%
    • 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
    • The portfolio continued to pare certain credits. We intend to hold the cash for some time in the future and redeploy the same as uncertainties recede 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 5.50% as we pared down our exposure to certain credit. 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 1.87 years
Looking ahead : green shoots
  • Globally, the USA elections as an event is over. Without worrying about immediate short-term reaction, the medium-term outlook for markets will be driven by the policy changes post the outcome. This can create some new set of beneficiaries on the business and markets front. Resurfacing of Covid infections in Europe and USA can pose a threat to the market sentiments, as globally, lockdown is not a variable being considered by market participants. 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 to be declared in November will show trends about extent of recovery and also the future directions on expectations will be set by the management commentary results. The festival season usually ushers in positive consumer sentiments and demand picks up across products. A positive festival season may clearly help settle the debate between a pent-up demand or a sustainable turnaround in economy.
Equity Market outlook and overview

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

S&P BSE SENSEX Index Nifty 50 BSE Midcap BSE Smallcap Nifty Midcap 100 Nifty Smallcap 100
1 Month 4.1% 3.5% 1.4% 0.1% 0.5% -0.1%
1 Year -1.3% -2.0% 0.3% 9.8% 1.5% 1.3%
DOW JONES INDUS. AVG S&P 500 Index NASDAQ Composite Index
1 Month -4.6% -2.8% -2.3%
1 Year -2.0% 7.7% 31.6%

Source: Bloomberg Performance - Absolute returns | Data as on October 31, 2020

Equity Market update

The global markets bellwether, US markets had second successive weak month with negative returns.

Indian markets on the contrary had a positive month, led mainly by large cap indices that outperformed the mid and small cap indices. Nifty gained 3.5% while Nifty Midcap 100 and Nifty Smallcap 100 indices were broadly flat with 0.5% gain and 0.1% loss, respectively. Among large sectors in market, Financials, IT and Metals outperformed Nifty, while Auto, FMCG, Pharma and Energy underperformed Nifty.

Globally, the news flow shifted to tracking the elections in USA as well as the possibility of second phase of Covid infections in Europe and USA. While vaccine development efforts by many pharma companies give hope, the visibility remains elusive as no one has yet filed the product for approval with drug regulators.

The Indian economy continues to normalise with a significant data showing a YoY growth/flattish trends. A majority of high frequency indicators like demand for electricity/petrol/diesel, railway freight, GST collection, production of automobile, cement, steel are in the green. The festive season that started in mid-October has seen encouraging response across products as consumer sentiments are improving. We believe November too should bode well for many aspirational products. The services, especially travel and hospitality remains in a challenging spot as people are still staying safe and not venturing out much. We continue to monitor the trends there too.

The early set of results for Q2FY21 have been quite encouraging especially with corporate commentary on optimism around recovery led by festive season. In a positive surprise, many of the banks expressed an optimistic outlook on asset quality. A combination of restructuring of large accounts, government scheme for SMEs and behaviour on secured retail portfolios have led to the confidence. Unsecured retail lending does have some challenges for some lenders but absolute quantum is quite manageable at the aggregate level.

On policy front, Government has expressed its intent to support the economy with fiscal stimulus-II. While the actual timing, mode and quantum of the stimulus-II is not known, we believe festive season seems an appropriate time for the same. RBI too has expressed its intent to support economy by lower rates and adequate liquidity to boost economic activity.

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 focused portfolio with around 33 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 Manulife Large Cap Pragati Yojana

    The portfolio is a focused portfolio with around 32 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 Manulife Top 250 Nivesh Yojana

    The scheme focusses on investing in companies that have demonstrated strong leadership and sustained growth. The portfolio has a focus on large caps and midcaps which are currently at around 51% and 40% of net equity holdings respectively.

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 4.83 years for the debt portion
    • The current asset allocation has a higher allocation to AAA credits than Government securities
    • As AAA credit spreads have contracted meaningfully, we may change our portfolio allocation with a bias towards gilts
What should an investor do?

For investments in debt products:

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

For investments in equity products:

  • Our view is that volatility may be here for some more time and SIP can 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.
  • For investors looking for a longer period investment, SIPs or STPs into large cap, multicap or balanced funds based on risk appetite, can be considered.
  • Those willing to take a higher risk, 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 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. 00810

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