20181101004-fixed income outlook (nov 2018) …...currency & oil: higher us inventories coupled...

FIXEDINCOME

N O V E M B E R 2 0 1 8

Key Events During the Month

Market View

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Currency & Oil: Higher US inventories coupled with potential increases in supply from Saudi Arabia and Russia pushed Crude prices downward. Crude has now fallen approx. US$10/bl from its peak. This is a significant sentiment booster for the Indian economy. The INR also saw some strengthening on the back of positives on the crude front. The INR ended the month at Rs 73.96/US$.10 Year at 7.85%: The benchmark yield on the 10 Year G-Sec fell 17bps during the month from 8.02% to 7.85%. Bond markets continued to remain volatile as recoveries in crude and the currency gave the markets some respite in an otherwise volatile environment. However, FPI`s continued to remain sellers in the debt markets adding to pressures on spreads. Banking Liquidity: Banking liquidity tightened during the month on account of advance tax and GST payments. Further forex intervention by RBI and increasing currency in circulation on account of the forthcoming festive season added to liquidity tightness. The RBI on its part conducted OMO`s of Rs. 36,000 Cr to alleviate system liquidity pressures. Further it has scheduled OMO`s worth Rs. 40,000 Cr in November.Steps to Address Money Market Liquidity: In an attempt to alleviate concerns on liquidity in money markets, the RBI has created an additional line of funding for NBFC`s through an SLR carve out in order to facilitate lending by banks. Further, it has also increased single borrower exposure limit for NBFCs which do not finance infrastructure stands from 10 to 15 % of capital funds, up to Dec 31, 2018. The government on is part, through NHB, decided to increase the refinance limit for eligible housing finance companies (HFCs) by ~Rs 6,000 Cr is a measure to boost lending support.Inflation – Remains Benign: Consumer price inflation saw a marginal up move to 3.8% in September on the back of higher fuel costs percolating through to prices. September WPI inflation picked up to 5.1%. Higher crude prices also had a marginal impact on manufactured goods adding to the inflation move. Food inflation continues to remain benign. A point to note is quarterly average of inflation has been lower than RBI estimates for the quarter gone by.RBI Action & The MPC minutes: The Reserve Bank of India (RBI) decided to keep rates unchanged while shifting its stance from neutral to ‘calibrated tightening’. There were no material inferences from the MPC minutes this month. The underlying consideration for keeping rates unchanged focused on the domestic positives like improving macro-economic conditions and buoyant industrial growth while maintaining caution on the external environment. The RBI also lowered the inflation band for the year to 3.9 – 4.5% in H2RBI V/s The Government: Media reports indicate concerns of a rift between the government and the RBI. Such developments could be a sentiment dampener on long bonds.

While crude continues to remain elevated, it has fallen by approximately US$10/barrel, a sentimental positive. The rupee depreciation has not been too harsh and in our opinion is fairly valued on a REER basis. On a macro front, India is the one of only emerging market country with real GDP @7.5%+, 150 bps+ positive real rate, moderate inflation and now a very effective valued currency. Also strong global growth cycle coupled with positive commodity cycle in the last 12-18 months, strong local growth momentum, consumption theme and steps to clear banking NPA mess has significantly improved the local credit environment. 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, we feel that the average inflation for the year would be around 5% band and hence we don't feel terminal repo rate to be above 6.75-7% till March 2019. Hence we feel RBI will at max 25-50 bps rate hikes in next 6-12 months. Long bonds are likely to remain in a range of 7.80% - 8.20% on the 10-year G-Sec.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 significant opportunities and thus prefer this space.

10 YEAR G-SEC YIELD

7.85%

QUICK TAKE

CPI Inflation : Last 1 year

3.58%

3.77%

Repo : Last 1 year

6.00%

6.50%

10 yr G-Sec : Last 1 year

7.85%

6.89%

• INR is now fairly valued on a REER basis. RBI remains cautious of steep corrections.

• Oil and Rupee stability is a sentimental positive for the economy.

• Long bonds are likely to trade range bound. Short tenor bonds look attractive from a risk reward perspective.

• We continue to advise investors to stay invested in short to medium term strategies and actively look at credit funds

AXIS DYNAMIC BOND FUND

Yield to Maturity *

8.92%

Type of Scheme

Modified Duration

3.3

Average Maturity

4.6years years

Dynamic Bond

Why Invest?

“ G o A n y w h e r e ” actively managed Fund following a Best Ideas approach and can move across the yield curve

Yield to Maturity *

9.93%

Type of Scheme

Modified Duration

2.0

Average Maturity

2.4 Why Invest?

To target stable risk-return profile

years years

Medium Duration Fund

AXIS STRATEGIC BOND FUND

AXIS CREDIT RISK FUND

Yield to Maturity *

10.19%

Type of Scheme

Modified Duration

1.6

Average Maturity

1.9years years

Credit Risk Fund

Why Invest?

T o c a p t u r e opportunities across accrual, credit and duration space.Monitors risk by c o n t r o l l i n g t h e overall portfolio duration

AXIS SHORT TERM FUND

Yield to Maturity *

8.66%

Type of Scheme

Modified Duration

1.1

Average Maturity

1.3years

Short Duration Fund

Why Invest?

Actively Managed Short Duration Fund with Daily Liquidity e n d e a v o r s t o generate s tab le returns by following a high quality & low-risk strategy

AXIS BANKING & PSU DEBT FUND

Yield to Maturity *

8.56%

Type of Scheme

Modified DurationAverage Maturity

3.5years

Banking and PSU Fund

Why Invest?

Target stable returns with high credit quality and liquidity. Rigourous c r e d i t e v a l u a t i o n . Suitable for investors with a holding period of one month or more.

Yield to Maturity *

9.43%

Type of Scheme

Modified Duration

1.0

Average Maturity

1.1 Why Invest?

C a p t u r e opportunities from credit spread while managing risk

years years

Corporate Bond Fund

AXIS CORPORATE DEBT FUND

2.8

• The fund endeavors to capture opportunities from credit spreads with a cautious approach in managing risk. The fund will typically maintain maturity between 6 to 18 months. The fund seeks to maintain a judicious mix by investing 80% in highest rated instruments (AAA/A1+/SOV and equivalent) and 20% in non AAA instruments.

• The fund predominantly invests in a mix of corporate bonds (80%+) and money market instruments. The current duration of the fund is 1 year.

• The fund follows a high quality & low-risk strategy endeavoring to generate stable returns. It aims to capture opportunities in the yield curve spreads in the short duration segment.

• The fund tracks corporate bond v/s Money market instruments spreads closely while making its allocations. The portfolio allocation continues to be in 1-3 year corporate bonds and money market instruments.

• The portfolio stance is expected to benefit from the compression in spreads in the short to medium term segment of the curve on account of surplus liquidity. The corporate bonds exposure remains mainly in higher rated instruments. The current duration of the fund is 1.1 years.

• The fund as part of its revised investment mandate aims to invest 60-70% in non-AAA bonds with a duration target range of 3- 4 years. The short term space currently looks attractive from a risk reward basis and hence the fund is allocated assets to AAA securities on an incremental basis. The portfolio design should help generate stable returns while bringing down volatility relative to a longer duration fund. Currently, the fund has duration of 2 years.

• The fund targets stable returns with high credit quality and liquidity predominantly through investment in Debt & Money Market Instruments issued by Banks, Public Financial Institutions (PFIs) and Public Sector Undertakings (PSUs).

• The dislocation in bond yields has provided significant investment opportunities in the short to medium term corporate bond market i.e. 3-4 years. Currently the fund is completely invested in AAA securities within the 3-4-year maturity bucket. The fund will continue to invest in residual maturity bonds within this maturity bucket to take advantage of the accrual opportunities in this space. The current duration of the fund is 2.8 years.

• The fund is positioned to benefit from its core allocation in short term corporate bonds (Below AA+) i.e. in the 2-3-year space. The current duration of the fund is 1.6 years. The focus of the fund is to capture the compression in the 1-4 year corporate bonds and also have a higher accrual.

• Given our market view on improved credit environment, improving corporate profitability and looking at a favorable risk reward perspective the fund has shifted from duration and AAA corporate bonds to a majority allocation in lower rated corporate bonds (below AAA rating).

• The portfolio stance is expected to benefit from the compression in spreads in the short to medium term segment of the curve.

• The fund is positioned as an actively managed bond fund which invests in the best ideas at any time and can move across the yield curve. Both duration and asset allocation (G-sec v/s corporate bonds) are actively managed.

• Over the past six months, the duration of fund has been reduced in a staggered manner and the portfolio construct has been modified by building a core short term corporate bond portfolio, shifting from government bonds to AAA & AA short corporate bonds. Currently the fund’s duration is 3.3 years.

years

years

* The yield to maturity given above is based on the portfolio of funds as on 31st October, 2018. This should not be taken as an indication of the returns that maybe generated by the fund and the securities bought by the fund may or may not be held till their respective maturities. The calculations are based on the invested corpus of the debt portfolio. For instruments with put/call option, the put/call date has been taken as the maturity date.

Yield to Maturity *

8.73%

Type of Scheme

Modified Duration

118

Average Maturity

131 Why Invest?

Short term solution for parking funds

days days

Ultra Short Duration Fund

AXIS ULTRA SHORT TERM FUND• The fund is a short term solution to park funds in a portfolio which endeavors to offer a portfolio with lower volatility and

higher carry. The fund is ideal for investors with an investment horizon of 3-6 months. The fund predominantly invests in a mix of corporate bonds (50%+) and money market instruments. The current duration of the fund is 118 days.

FIXEDINCOME

N O V E M B E R 2 0 1 8

Money Market Instruments

Corporate Bond

G-Sec

Why Invest?

Type of Scheme

Average Maturity

Modified Duration

Yield to Maturity*

Asset Mix

Sovereign/ AAA $

& equivalent

AA+

AA

AA-

Rating Mix

Exit Load

Load Structure

A+

Axis Short Term Fund

Actively Managed Short Duration Fund

with Daily Liquidity

Short Duration Fund

1.3 years

1.1 years

8.66%

29.3%

63.1%

4.1%

NIL

-

-

91.2%

6.4%

2.4%

3.6%

Axis Liquid Fund

Cash Management

Liquid Fund

30 days

27 days

7.33%

99.7%

0.3%

NIL

99.9%

-

-

0.1%

-

-

Axis Treasury Advantage Fund

Low Duration Fund

8.60%

57.4%

42.2%

-

For spare cash in your Bank

Account

195 days

175 days

83.5%

7.0%

NIL

7.1%

2.5%

-

0.4%PTC

Axis Banking & PSU Debt Fund

Short term investment with

high quality portfolio

Banking and PSU Fund

0.8%

94.8%

NIL

100.0%

-

-

-

-

4.4%

-

Axis Dynamic Bond Fund

Dynamic Bond

4.6 years

3.3 years

8.92%

17.5%

35.7%

39.7%

“Go Anywhere” Fund following a

Best Ideas Approach

70.9%

-

NIL

6.7%

8.6%

10.5%

7.1%

Axis Gilt Fund

To capture opportunities

from investments in government

securities

Gilt Fund

4.2 years

2.8 years

7.27%

50.7%

49.4%

-

NIL

100.0%

-

-

-

-

Axis Credit Risk Fund

Credit Risk Fund

1.9 years

1.6 years

10.19%

4.9%

83.7%

0.6%

To capture opportunities across accrual, credit and

duration space

10.8%

Axis Strategic Bond Fund

Medium Duration Fund

2.4 years

2 years

9.93%

1.5%

86.4%

4.4%

To target stable risk-return profile

43.8%

6.8%

18.4%

15.9%

10.3%

7.8%

Axis Corporate Debt Fund

Capture opportunities from credit spread

while managing risk

Corporate Bond Fund

1.1 years

9.43%

12.6%

77.4%

5.9%

3.7%

83.6%

-

-

8.8%

8.56%

A -- - 1.2%- 2.5%

-

5.9%

0.7%

A- -- - 2.1%-1.4% 2.4%

1 year

3.5 Years

2.8 Years

30.6%

-

31.4%

18.9%

11.5%

3.2%

4.5%

-

-

I f r e d e e m e d / switched-out within 6 months from the date of allotment: 0.50%; If redeemed/switched out after 6 months from the date of allotment: Nil, w.e.f 3rd August, 2018

I f r e d e e m e d / switched-out within 12 months - For 10% of investment : NilFor remaining investment : 1% If redeemed / switched out after 12 months from the date of allotment: Nil

I f r e d e e m e d / switched-out within 12 months :- For 10% of investment : Nil - For remaining investment : 1% If redeemed / switched out after 12 months from the date of allotment: Nil

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AT A GLANCE

$AAA & Equivalent includes AAA/A1+-rated papers. *The yield to maturity given above is based on the portfolio of funds as on 31st October, 2018. This should not be taken as an indication of the returns that may be generated by the fund and the securities bought by the fund may or may not be held till their respective maturities. The calculations are based on the invested corpus.

Axis Ultra Short Term Fund

Ultra Short Duration Fund

131 days

118 days

8.73%

53.3%

39.2%

-

Short term solution for parking funds

79.5%

5.1%

NIL

5.1%

4.7%

3.5%

7.6%

2.1%

-

Data as on 31st October, 2018.

Disclaimer: Past performance may or may not be sustained in the future. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the securities mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). This document should not be construed as research report.

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) Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Source of data: Bloomberg, ACEMF

Axis Short Term Fund (An open-ended short

term debt scheme investing in instruments such that the macaulay duration of the portfolio is between 1 year to 3 years)

This product is suitable for investors who are seeking*:

• Regular income while maintaining liquidity 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.

Riskometer

Investors understand that their principal will be at moderately low risk

LOW HIGH

Moderate ModeratelyHighModerately

Low

HighLo

w

Axis Treasury Advantage Fund (instruments such that the Macaulay duration of the portfolio is between 6 to 12 months)

An open-ended low duration debt scheme investing in


• Regular income over short term.



Riskometer


LOW HIGH


Low

HighLo

w

Axis Dynamic Bond Fund (An open

ended dynamic debt scheme investing across duration)


• Optimal returns over medium to long term.

• To generate stable returns while maintaining liquidity through active management of a portfolio of debt and money market instruments.


Riskometer

Investors understand that their principal will be at moderate risk

LOW HIGH


Low

HighLo

w

Axis Gilt Fund (An open-ended debt scheme

investing in government securities across maturity)


• Credit risk free returns over medium to long term.

• Investment mainly in government securities across maturities.


Riskometer


LOW HIGH


Low

HighLo

w

Axis Strategic Bond Fund (An open-ended medium term debt scheme investing in instruments such that the macaulay duration of the portfolio is between 3 years to 4 years)


• Optimal returns over medium term.

• Investment in diversified portfolio of debt and money market securities to generate optimal risk adjusted returns while maintaining liquidity.


Riskometer


LOW HIGH


Low

HighLo

w

Axis Liquid Fund (An open-ended liquid

scheme)





Riskometer

Investors understand that their principal will be at low risk

LOW HIGH


Low

HighLo

w

Axis Credit Risk Fund (An open-ended

debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds)


• Stable returns in the short to medium term.

• Investment in debt and money market instruments across the yield curve and credit spectrum.


Riskometer


LOW HIGH


Low

HighLo

w

Axis Banking & PSU Debt Fund (An open-ended debt scheme predominantly investing in debt instruments of banks, public sector undertakings & public financial institutions)


• Regular income over short to medium term.

• Investment in debt and money market instruments issued by Banks, PFIs & PSUs.


Riskometer


LOW HIGH


Low

HighLo

w

Axis Corporate Debt Fund (An open

ended debt scheme predominantly investing in AA+ and above rated corporate bonds)


• Regular income over short to medium term.

• Predominantly investing in corporate debt.


Riskometer


LOW HIGH


Low

HighLo

w

Axis 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 months and 6 months)



• Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months - 6 months.


Riskometer


LOW HIGH


Low

HighLo

w

20181101004-fixed income outlook (nov 2018) …...currency & oil: higher us inventories coupled...

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