2018 – year in review & looking ahead - axis mf · 2004/1/19 · sectoral performance index...
TRANSCRIPT
OUTLOOK 2019
2018 – YEAR IN REVIEW & LOOKING AHEAD
If 2017 was characterized by low volatility across asset markets, 2018 saw the return of volatility albeit with
vengeance. Market trends switched abruptly, wrong footing market participants and investors alike causing angst and
dismay. Talking points for the year revolved around a wide range of topics including Currency, inflation, interest rates
and NBFC’s amongst other on the domestic front. Crude oil, US Tech stocks, Brexit and the US- China Trade war buzz
set the global trend of the markets this year. The result – a tough market for active investors – especially domestic equity
fund managers, many of whom struggled to outperform their respective fund benchmarks.
12,000
11,500
11,000
10,500
10,000
9,500
9,000
8,500
8,000
23.0%
21.0%
19.0%
17.0%
15.0%
13.0%
11.0%
9.0%
7.0%
5.0%
Dec-1
6Fe
b-17
Mar
-17
May
-17
Jun-
17Aug
-17
Sep-
17Nov
-17
Dec-1
7Fe
b-18
Mar
-18
May
-18
Jun-
18Aug
-18
Sep-
18Nov
-18
Nifty 50 Index Volatility (Nifty 50 Index - 25day)
Source: Bloomberg. Data as on 30th Nov 2018. Volatility represented by Standard Deviation.
The Topsy - Turvy Year -
RETURN OF VOLATILITY
Past performance may or may not be sustained in the future.
SECTORAL Performance
Index Name CY 2017 YTD
NIFTY AUTO 31.4 -20.7
NIFTY BANK 40.5 6.8
NIFTY CONSUMPTION 45.1 -0.7
NIFTY ENERGY 38.7 1.2
Nifty Finance 41.4 10.7
Nifty Financial Services 41.4 10.7
NIFTY FMCG 29.4 14.6
NIFTY INFRA 34.1 -12.5
Index Name CY 2017 YTD
NIFTY IT 12.2 24.7
NIFTY MEDIA 32.7 -27.4
NIFTY METAL 48.5 -19.3
NIFTY PHARMA -6.3 -8.0
NIFTY PSE 16.5 -21.1
NIFTY PSU BANK 24.1 -17.6
NIFTY REALTY 109.8 -29.9
Source: ICRA MFI, Axis MF Research. Data as on 19th Dec 2018
Past performance may or may not be sustained in the future.
GLOBAL MARKETS A year in reflection
In 2018, global economic growth remained largely stable, but in contrast to 2017, economies saw disjointed growth
across the developed and emerging markets. While the US continued to see robust expansion, data from the Eurozone
and China was pessimistic. At the same time, global monetary policy saw tightening as global central banks stepped
back from their long-standing expansionary policies. While this move was choreographed across global borders, a
decade of complacency by market participants caught them unaware as markets adjusted for a higher interest rate
environment. Debt markets too, were faced with marked to market losses as credit spreads especially in lower rated
securities ballooned.
As the US Fed raised rates...
2.5
2
1.5
1
0.5
0
Dec
-14
Dec
-15
Dec
-16
Dec
-17
Dec
-18
1.8
1.6
1.4
1.2
1.2
1.44 1.48
1.63
1.44
1.58
1.78
US Corporate BBB Spread over 10 Year Treasuries saw their highest
levels since 2016
Dec
-17
Jan-
18
Feb-1
8
Mar
-18
Apr
-18
May
-18
Jun-
18
Jul-
18
Aug
-18
Sep-1
8
Oct
-18
Nov
-18
Dec
-18
Source: FRED, Bloomberg, Axis MF Research,
The aggressive trade stance that the US has struck since
the start of 2018 remains a significant threat to smooth
economic function and the frictionless flow of goods around the
world. Companies with a supply chain heavily reliant on China could
be faced with 25% tariffs on exports to the US in 2019. We could, equally,
see a trade deal with lower barriers than we had before. These are clearly two
very different cost and business environments and makes planning extremely hard for
companies.
THE CHINA IMPACT
1700
1500
1300
1100
900
Baltic Dry Freight Index
1395
1042
1772
1406
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Dec-18Oct-18 Nov-18
Source: Bloomberg, Axis MF Research. Data as on 17th Dec 2018
BrexitBrexit has been an overhang on Europe in general especially the British pound which saw its most volatile year
since the financial crises. As negotiations between the EU and UK draw to a close, the Theresa May government
has been on tenterhooks as the possibility of a ‘No-Deal’ outcome of the brexit negotiations have become a
plausible outcome. The date for the formal exit from the Eurozone is 29th March 2019. As the due date draws
nearer, specifics of the exit and a possible fresh referendum may drive market sentiment for European investors.
DOMESTIC MARKETS
Resilient india
The local economy showed clear signs of a pick-up in
growth – although the revival was not as consistent or
broad based as had been expected at the beginning of
the year. This reflected in continued disappointment in
earnings growth for the broader market.
16%
14%
12%
10%
8%
6%
4%
2%
Jun-
15
Sep-1
5
Dec
-15
Mar
-16
Jun-
16
Sep-1
6
Dec
-16
Mar
-17
Jun-
17
Sep-1
7
Dec
-17
Mar
-18
Jun-
18
Sep-1
8
Corporate Revenue, YoY (ex energy and fin)
Jun-
15
Sep-1
5
Dec
-15
Mar
-16
Jun-
16
Sep-1
6
Dec
-16
Mar
-17
Jun-
17
Sep-1
7
Dec
-17
Mar
-18
Jun-
18
Sep-1
8
18%
16%
14%
12%
10%
8%
6%
4%
2%
BSE 500 Corporate Revenue, YoY (ex energy and fin)
Source: Morgan Stanley, Capitaline, Axis MF Research.
New challenges are facing the economy as we turn the year – Tepid food inflation is an indirect indication of the stress in the rural/ farm sector. Large MSP increases that were announced this year have not had much of an impact. Disruptions in the NBFC sector can impact flow of retail credit – given their disproportionate presence in that space. Also with the general election approaching, there are risks of government taking populist steps that put fiscal targets at risk. Despite all challenges however, we expect the economy to continue to build up momentum primarily driven by consumption demand and improving capacity utilization is likely to lead eventually to a pick-up in domestic capex. Growth environment is also supported by low inflation that is putting off pressure for rate hikes as well as a sharp fall in commodity prices including – most importantly – crude oil. The banking system is slowly but surely getting back on its feet as incremental NPLs have started to come off and some of the pending big ticket cases have started getting resolved through the NCLT process. The government has continued to push on improvements in ease of doing business and competitiveness indexes which is helping India attract the attention of global capital flows.
19.5
17.0
14.5
12.0
15.6
NIFTY ROE (x) - 1 Year Forward
10 Year Avg: 15.1x
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Dec
-16
Dec
-17
Dec
-18
Buoyant consumer demand and heightened manufacturing activity in the economy has led to the highest capacity
utilization in 5 years. Dearth of capital expansion stemming from over expansion in the previous business cycle
has been a drag on the industry grappling with large unused capacities and tepid demand. Streamlining of
regulatory framework and improving business sentiments domestically has corrected years of demand supply mis-
match. The high operational gearing in this industry is likely to aid corporate profitability going forward as
companies effectively manage marginal costs and capital allocation.
CAPACITY UTILIZATION at five-and-a-half-year high
Manufacturing Capacity Utilisation Long Term Average
Long term Average: 74.9%
84%
82%
80%
78%
76%
74%
72%
70%
68%
76.1%
2Q
F11
4Q
F11
2Q
F12
4Q
F12
2Q
F13
4Q
F13
2Q
F14
4Q
F14
2Q
F15
4Q
F15
2Q
F16
4Q
F16
2Q
F17
4Q
F17
2Q
F18
4Q
F18
2Q
F19
55
53
51
49
47
49.1
52.4
54.4
49.6
52.5
47.9
54.7 54.4
Manufacturing PMI also indicateshightened business activity
Manufacturing PMI
Average
Dec
-15
Mar
-16
Jun-
16
Sep-1
6
Dec
-16
Mar
-17
Jun-
17
Sep-1
7
Dec
-17
Mar
-18
Jun-
18
Sep-1
8
Dec
-18
Source: RBI, Morgan Stanley Research, Axis MF Research. PMI above 50 indicates an expansion of business activity.
Source: Motilal Oswal. Data as on 18th December 2018.
India has jumped 65 places since 2015
EASE OF DOING BUSINESS
India witnessed a 23-notch jump to a record 77th position in the World Bank’s latest report on the ease of doing
business that captured the performance of 190 countries. The country showed an improvement in six of the 10
parameters, having witnessed a leap of 129 notches in the ever-laggard ‘construction permit’, 66 in ‘trading
across borders’ and 19 in ‘starting a business’. The country’s rank under the current NDA government jumped
from 142nd in the World Bank’s 2015 report (which reflected reforms undertaken mostly up to May 2014) to 77
now. The move in the rankings has been the sharpest by any country.
World Rank Improved
Construction permits
2018 2019*
181 52
Trading across borders
2018 2019*
146 80
Starting a business
2018 2019*
156 137
World Rank Worsened
Resolving insolvency
2018 2019*
103 108
Registering property
2018
154
2019*
166
Paying taxes
2018
119
2019*
121
*Based on perception of reforms in the year through May, 2018 except for paying taxes); survey captures 190 countries Source: World Bank’s Doing Business 2019 reportSource: World Bank, Axis MF Research
100 77
2018 2019*
Source: World Bank, Axis MF Research
Overall ease of doing business
#Each year’s rank reflects reforms undertaken up to May of the previous year.
2015
2016
2017
20
19
20
18
142 131 130
100 77
Rank under India Regime#
DIGITAL TRANSFORMATION
The advent of affordable smartphones and fast 4G networks
has revolutionizing connectivity over the last couple of years.
India now has the world’s second-largest internet user base.
Further, it is a leader in mobile internet usage, with close to
80% of its web traffic accessed through mobile phones (as
compared to around 55% for China and a global average of
50%). This is giving rise to unique mobile-first business models
and is reshaping industries, including e-commerce,
entertainment and the sharing economy.
China
US
India-2028
Japan
UK
Germany
France
Korea
Canada
India-2017
Russia
Indonesia
710
629
383
132
114
97
76
71
41
40
30
11 (US$bn)
Source: Morgan Stanley Research, Vodafone Idea IR Presentation, Axis MF Research
Data usage per data subscriber per month (GB)
Bra
zil
Ind
on
esi
a
Ch
ina
Ru
ssia
Ind
ia(2
016)
Ind
ia(2
018)
1.1 2.1 2.8 3.2 1.0 8.3
...and there is still a long way to go with the untapped population potential
% of population India Subscriber base (bn)
Japan USA China Brazil Mexico India
62
27
11
60
14
26
36
17
47
22
38
41
15
42
42
73
21
7
Online but not Shopping
Not Online
Online Shoppers
Total Subs
Active Subs
Broadband Subs
1.2
1.0
0.5
Rural 0.5 bn
58% pen*
Urban0.6 bn
156% pen*
Source: Vodafone Idea IR Presentation TRAI, WEF, Axis MF Research
India likely to be 3rd biggest ecommerce market and the largest consumer of data globally!
*Projected
Technology is also allowing for dramatic
changes to the payments infrastructure.
Aadhaar provided the framework for the
launch of a national digital payment
system – the Unified Payments Interface
(UPI) that allows users to make money
transfers with their mobile phones. In a
country where cash has been king, mobile-
based digital payments are completely
changing the landscape. Since its launch,
UPI has shown rapid growth and will start
to allow all sections of the population to
participate in the formal economy.
UPI Transactions Amount(` bn)
600
400
200
0
Aug-1
6Nov
-16
Feb-
17M
ay-1
7Aug
-17
Nov-1
7Fe
b-18
May
-18
Aug-1
8
Source: PMJDY, NPCI, Axis MF Research,
CURRENCY TURMOIL Déjà Vu, Sans PanicFive years after the previous episode, India once again
found itself in the cross-hairs of global currency market
turmoil. The Rupee faced a burgeoning US Dollar
depreciating ~15% before stabilizing towards the end of
the year. The year-end ‘Santa’ rally coupled with a plunging
crude gave the government much needed breathing room.
The Rupee had rallied sharply during 2016-17 and as a
result had become overvalued in REER terms. The over-
valuation started reflecting in some loss of competitiveness
for the economy – as evidenced by a rising current account
deficit. This coupled with the rising US rate cycle, a broader
sell-off in EMs, rising crude oil prices, and an overall risk-off
sentiment, precipitated the sell-off in the Rupee. A notable
feature is that while the sell-off has been sharp against the
US Dollar, in relative terms, the INR maintained its strength.
In fact the extent of the out-performance during 2016/7
meant that despite the current sell-off the INR remains one
of the top performing EM currencies over the last 5 years.
Average REER: 114.71
The INR Saw a return to fair value during the year.
Rupee moving to
overvalued territory
125
120
115
110
105
Nov
-14
Feb-15
May
-15
Aug-15
Nov
-15
Feb-16
May
-16
Aug-16
Nov
-16
Feb-17
May
-17
Aug-17
Nov
-17
Feb-18
May
-18
Aug-18
Nov
-18
And yet remained one of the best performing EM currencies in the midst of rising concerns over the health of EM
economies
Returns for last 5 years
Given stability on inflation and crude prices, for now it looks like the pressure has eased on the currency. Minus a
global shock, we expect the INR to remain range-bound in the coming year.
Argentina
Turkey
Russia
Brazil
Mexico
Malaysia
Indonesia
India
China
Taiwan -3.9%
-11.8%
-13.3%
-16.5%
-22.6%
-36.1%
-39.9%
-50.5%
-61.9%
-83.3%
Source: Bloomberg, Axis MF Research Data as on 30th Nov 2018. Sovereign currency returns relative to USD.
ELECTORAL REVERSALS
One Year Is a Long Time in Politics
The ruling NDA had consolidated their position in 2017 with wins in several key states including UP and Gujarat.
However, 2018 saw them losing power in MP, Rajasthan and Chhattisgarh as well as missing out narrowly in
Karnataka. As the year draws to a close, the opposition is getting more vocal on creating a grand alliance to take
on the NDA in the general elections and the elections seem more open than what observers were expecting last
year. The first half of the coming year is likely to see a lot of political noise as markets and players try to figure out
which way the wind is blowing. From the market’s perspective, it is generally seen that a verdict which gives clear
majority to any dispensation is always preferred over a fractured verdict that has the risk of policy paralysis.
Although it is also true that the impact of election results tends to be more short term in nature and invariably gets
overshadowed eventually by the state of the economy and earnings growth.
SENSEX AND GENERAL ELECTION
ELECTIONDATES
ELEC-TIONYEAR
DIFFERENCESEN-SEXPTS.
PRE-CED-INGYEAR
SEN-SEXPTS.
Nov 2 - Nov 26, 1989
May 20 - June 15, 1991
April 27 - May 30, 1996
Feb 16 - Feb 23, 1998
Sep -Oct 6, 1999
April 20 - May 10, 2004
April 16 - May 13, 2009
April 7 - May 12, 2014
Nov 21, 1989
May 17, 1991
April 26, 1996
Feb 14, 1998
Sep 3, 1999
April 19, 2004
April 15, 2009
April 4, 2014
715
1,297
3,765
3,373
4,709
5,800
11,284
22,359
Nov 21, 1988
June 13, 1990
April 26, 1995
Feb 15, 1997
Sep 3, 1998
April 17, 2003
April 15, 2008
April 13, 2013
718
781
3,264
3,521
2,918
2,984
16,153
18,801
-3
516
501
-148
1,791
2,816
-4869
3,558
OIL How to go from
structurally bullish to structurally bearish
in two months
Crude has been an impediment to the India story over the past few quarters. From a low in 2016 of
approximately US$30/barrel, crude prices jumped to US$82/barrel in Mid-September 2018 raising concerns on
inflation and a possible breach of the fiscal deficit targets. A sharp reversal over the past few months has raised
optimism levels given India is a large crude importer. This has also reflected positively across rates and the
currency. We anticipate crude to remain fairly volatile over the next year given heightened geo-political tensions
and the demand supply mismatch.
STYLE PERFORMANCE – Quality outperformed Value during the year
Style Performance/Trends110
100
90
80
70
60Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
S&P BSE Quality Index S&P BSE Enhanced Value Index
Source: Asia Index Private limited, Axis MF Research. Normalized performance chart from 1st Jan 2018 to 21st Dec 2018. Past performance may or may not be sustained in the future.
Political and macroeconomic uncertainty drove investors to perceived safe haven stocks through the year creating
a clear demand for fundamentally sound stocks with strong earnings growth and niche business models. A style
analysis of gainers and losers shows quality stocks outperforming value stock styles during the year. The
performance has been a common theme even on longer term performance tenors over 3 years and 5 years.
Source: Asia Index Private limited. Data as of 21st Dec 2018. Alpha is calculated as the differential performance on various time lines between S&P BSE Quality Index and S&P BSE Enhanced Value Index. Past performance may or may not be sustained in the future.
23.1%
At Axis MF, since inception in 2009 our investment philosophy has focused on quality companies as an underlying
theme while building and managing portfolios. We primarily follow bottom-up stock selection approach with a
minimum 2-3-year view on stocks. Bias towards sustainable growth and strong fundamentals are the key look
outs for our fund managers in identifying investment ideas. This steadfast adherence to quality has reflected in
our equity fund performances over the medium and long terms. Coupled with our investment philosophy our
brand focus on responsibility also plays a key role in our commitment to investors and stakeholders. Our
commitment to responsible investing is imbibed into our research process through continuous monitoring of
portfolio stocks and interacting with company managements periodically to understand the nitty gritties of our
portfolio companies while constantly evaluating/re-evaluating our investment case for these companies.
Quality has outperformed value over the longer term as well
In Summary… News Drove the Markets!
Source: News articles, Bloomberg, Axis MF Research. S&P BSE Sensex. Past performance may or may not be sustained in the future.
39000
38000
37000
36000
35000
34000
33000
32000
Jan-
18
Feb-1
8
Mar
-18
Apr
-18
May
-18
Jun-
18
Jul-
18
Aug
-18
Sep-1
8
Dec
-18
Oct
-18
Nov
-18
Govt announces Bank Recap
Union Budget F19-Govt introduces Long Term Capital Gains Tax on Equities
RBI keeps policy rates unchanged
PNB bank detects fradulent transactions at it Mumbai branch worth US $1.8bn
IMD predicts monsoon at 97%LTA
RBI removes min. maturity cap for FPI investment in bond market
BJP falls short of majority in Karnataka; Cong-JD(S) stich alliance
Crude breaches $80/ barrel, highest since Dec 2014
CCEA approves increase in MSP for Kharif crops for 2018-19 season
GST out on a range of products
No confidence motion against NDA govt. held
RBI announces a limited extension for Mr. Rana Kapoor's tenure as MD and CEO, until 31st Jan, 2019
Concerns of systemic liquidity risks in the NBFOs and HFOs.
Govt announces merger of 3 PSU banks
RBI eases liquidity requirements and steps up OMO purches
India's rank in ease of doing business improves significantly from 100 last year to 77
Congress wins 3 out of 5 state elections, with the regional parties winning rest
RBI's OMO purches continued with INR 1.6tn in FY19 till date
FX reserves decline by most since 2011
RBI hikes rates by 25 bps to 6.25%
While news drove markets this year, quality companies remained a standout performer for the year. We anticipate
that quality will continue to remain a resilient performer on account of strong underlying fundamentals. As the
saying goes, stock prices are slaves to corporate earnings. The market has differentiated companies who have
consistently performed despite short term market sentiments.
1 Year
3 Year
5 Year
5.8%
10.9%
The markets have seen bouts of volatility over the last few months and currently offer reasonable valuations in
select pockets. While we are less pessimistic than 3 months ago given lower crude prices, we continue to remain
cautious in the run up to election season and global macro factors.
The true test of any portfolio is in times of market uncertainty. Our focus has remained on alpha generation and
fundamentals of our investee companies. Amidst heightened volatility, we believe our portfolios have remained
relatively sheltered as we have effectively managed our exposure to high beta and at times taken cash calls in
select portfolios. Our focus continues to remain on quality as we are cautiously optimistic on markets over the
medium term.
Knee jerk reactions to news events are likely to remain part and parcel of equity markets for the next few quarters.
Hence, Investors are advised to deploy funds in a phased manner. Systematic investments into equity products
could also help investors ride out short term volatility.
EQUITY OUTLOOK
Fixed income markets have been under pressure from 2017, with the benchmark 10 year yields pushing relentless
higher from their demonetization lows. In 2018, the yields came under further pressure on the external account – with
FII selling, Rupee and crude pressures all playing a part. However, sentiment has shifted remarkably as we close the
year.
Debt investors in the short to medium term space have been rewarded as they rode the see-saw moves in the debt
markets. The year is likely to end with debt returns outperforming equity markets in many debt mutual fund categories.
Credit risk was brought to the forefront once again, thus highlighting that debt funds are not risk free investments and
investors should heed caution while investing in relatively high risk high reward debt products. The higher credit risk
scenario has since diminished as reflected in the normalized prices across the yield curve
India remained a relative favorite with foreign investors looking at emerging markets despite the overall global shift
away from EMs. This is due to the bright spots of opportunity India continues to offer. It also retained its tag as the
fastest growing nation by GDP growth rate as growth waned across most of the developing world amidst a sagging
global economic environment. Currently, India continues to offer high real rates and a stable currency and hence
remains a strong contender for foreign debt capital.
GDP numbers should be seen in context of a normalizing base post the GST implementation last year. While the full
impact of GST on the GDP base has not been captured, we anticipate the high crude oil prices during the quarter may
have exasperated the downtick. This is likely to get balanced out in the coming quarters. The long term story continues
to remain intact given the strong high frequency numbers and strong corporate earnings.
FIXED INCOME – All’s Well
That Ends Well?
CONCERNS OVER LIQUIDITY
The IL&FS default sent shockwaves across the NBFC space in early August 2018 as concerns
over asset liability mismatches and poor risk management protocols in the quest for a
growth blitzkrieg were brought to the fore. Timely action by the RBI and confidence building
measures by the government alleviated much of the contagion risk. An already dislocated
bond market favoring short tenor debt instruments saw some degree of aggravation as
market participants took a back seat and were in a wait and watch mode as news flow drove
debt market valuations. This was a short term market liquidity crunch and re-emphasized the
need for continuous credit evaluation and responsible investing. Fund houses with
prudent lending philosophies and strong credit appraisal processes came out as
big winners setting an example for the rest of the industry. The market is
now slowly finding its way back to normalcy as rates have
returned to pre-crises levels.
RBI UNDER SPOTLIGHT
2018 was an eventful year for debt
markets as well as their regulator (RBI). From a
clamor for rate hikes to a whisper of rate cuts, the year
has seen it all and the RBI has had to navigate a dynamic macro
environment. While they deserve credit for holding their nerve against the
currency market sell-off, their inflation forecasts have been under the scanner for missing the
actuals by a wide margin. On policy front, the RBI became more activist during the year as they
forced management changes on several private sector banks as well as maintained pressure to clean up
(through PCA norms) the weaker PSU banks.
Towards the end of the year the focus moved to the talk of disagreements between the RBI & the government as well
as RBI’s management of the repercussions of the IL&FS default and the risk of contagion in the NBFC space. With a
new Governor in place as we close the year, the spotlight will continue to be on the RBI in the coming year as well.
We do not believe that there is a material risk of financial instability and hence the RBI is likely to continue to focus
on inflation trajectory. With the current inflation trajectory and RBIs inflation projection for the year at 4%, we don't
see significant moves on the repo rate front for a prolonged period.
90
85
80
75
70
65
60
55
86.29
60.20
Brent crude price ($/barrel)
Crude Oil - Rise and Fall
62.79
Nov-17 Feb-18 May-18 Aug-18 Nov-18
8.2
8.0
7.8
7.6
7.4
7.2
7.0
Nov-17 Feb-18 May-18 Aug-18 Nov-18
7.16
8.18
A Volatile G-Sec Market
10 year G-Sec Yield(%) 50 per. Mov. Avg. (10year G-Sec Yield(%))
Source: Bloomberg, Axis MF Research. Data as on 30th Nov 2018
Inflation remained a talking point through the year as inflation
remained subdued on the back of weak food inflation figures. Below
normal monsoons for the year and MSP hikes failed to buoy the rural
economy as logistical problems continue to mar farmer incomes. Rural
consumption hence remained benign. RBI lowered its forecasts for inflation twice
during the year underpinning the RBI’s concern over the weak inflation numbers.Core inflation saw a rebound during the year with November numbers surpassing street estimates at ~6%.
Manufacturing inflation was also elevated as higher consumption and raw material prices drove up cost of
manufactured goods for the year. This is however likely to normalize over the coming months as commodity prices
have nosedived yet again.
INFLATION
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Nov-16 May-17 Nov-17 May-18 Nov-18
RBI Target Rate 4%
CPI Inflation (%) RBI Traget Rate
1.46
4.92
2.33
Source: Bloomberg, Axis MF Research. Data as on 30th Nov 2018
Inflation Remained Beneign on low food inflation
We do not believe that there is a material risk of financial instability and hence the RBI is likely
to continue to focus on inflation trajectory. With the current inflation trajectory and RBIs
inflation projection for the year at 4%, we don't see significant moves on the repo rate front for
the rest of the financial year.
As the shadow of the IL&FS saga and the NBFC liquidity crunch recede, 2019 is likely to be a
better year for debt against the backdrop of lower crude and stable macros. However, the
fiscal position is likely to remain an overhang given that current GST collections are far lower
than budgeted expectations and non-tax revenue growth continues to remain tepid. Also, the
surprise exit of the RBI governor is likely to add to short term uncertainties as the market awaits
the policy changes of the new governor.
FIXED INCOME OUTLOOK
Dec-16
9.5
8.5
7.5
6.5
5.5Jun-17 Dec-17 Jun-18 Dec-18
Repo 3 year AAA PSU 3 year G-Sec Yield
Source: Reuters, Axis MF Research. Data as on 21st December 2018.
Corporate Bonds In The Short Term Continue To Remain Our Top Pick
Past performance may or may not be sustained in the future.
Currently, the curve offers significant opportunities from investment perspective as markets are
pricing in more than 1 hike till March 2019. Corporate bonds in the 1-3-year space currently
trade at a premium of 200 bps over the operative rate which we believe offers material
opportunities and hence prefer this space.
CHART OF THE YEARBITCOIN CRASH Cryptos discover the law of gravity
20000
15000
10000
5000
0
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
Bitcoin - Bubble Bust
Source: Bloomberg, Coinbase. Data as on 19th December 2018. Axis AMC is not offering a view on crypto currencies. Investing in crypto currencies involves a high degree of risk and investors should consult professional investment advisors and adhere to regulatory guidelines while investing in such products.
Given the mindset around the topsy turvy events in 2018, investors
have varied their move as the perception of risks have continued
to override. In such a situation, it is important that they plan their
investments responsibly than taking sub-optimal decisions.
As the investors are particular about money, we have learnt that what they
want is assurance, not of fancy returns, but of care and concern for their
hard-earned money.
At Axis Mutual Fund, we follow an investment philosophy that puts a strong
emphasis on risk management and with a responsible money manager by
the investors side – what seems risky, wouldn’t seem risky anymore.
Markets don’t create wealth, responsible investing does. Having said that
responsible investing covers all the facets of investing in a more systematic
and channelised manner to ensure that an investor does not chase returns
but plan the journey responsibly towards wealth creation.
Investors should consult a responsible financial advisor who would help
manoeuvre through the nuances of investing and choose a responsible
money manager who is able to pick the good apples (performing stocks
which are very few in number) by focusing on quality and sustainability,
while also managing various risks that are associated with the investment.
Understands investor goals
Educates investors about the right way of investing
Recommends funds as per investors’ risk appetite
Prepares investors for uncertainties
Think long term
Avoid timing the market
Be rational and keep emotions at bay while investing
Plan with a goal in mind
Promotes strong corporate governance
Invests in strong business models
Aims for a secular growth rate of the sector (around 1.5x - 2x of GDP)
Manages risks
Responsible Money Manager
Responsible Advisor
Responsible Investing
Disclaimers
Risk Factors
Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to ` 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager:
Axis Asset Management Co. Ltd. (the AMC).
The analysis covered in this note is as on December 21st 2018. Past performance may or may not be sustained in the future. The annual outlook should not be construed as an investment advice to investors and should not form basis of any investment rationale or actual investments. Investors are advised to conduct their own due diligence and research before investing in equity or debt markets or mutual funds schemes offered by Axis Asset Management Company limited. Axis mutual fund, its trustees and Axis AMC shall not be held responsible for any losses suffered by investors investing on the basis of this document.
The material is prepared for general communication and should not be treated as research report. The data used in this material is obtained by Axis AMC from the sources which it considers reliable. While utmost care has been exercised while preparing this document, Axis 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. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC reserves the right to make modifications and alterations to this document as may be required from time to time.
Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein.
Mutual Fund Investments are subject to market risks, read all
scheme related documents carefully.
Stock(s) / Issuer(s)/ Top stocks mentioned above are for illustration purpose and should not be construed as recommendation.