111222433-Fixed Income Outlook (May 2016 ... - Axis Mutual Fund

India's external accounts are likely to remain comfortable even as the BoP surplus has ... changed liquidity stance, should lead to lower market rates over the next 12 months ... and replaced with corporate bonds and money market instruments.
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FIXED INCOME OUTLOOK MAY 2016

5.2%

7.9% 7.4% 10 yr G-Sec : Last 1 year

QUICK take

7.5% 4.8%

6.5%

CPI Inflation : Last 1 year

Repo : Last 1 year

• While further policy rate cuts are likely limited, better transmission and changed liquidity stance, should lead to lower market rates over the next 12 months. • Investors with risk appetite should look to add duration in their bond portfolios while those with lower risk profile may look for shorter duration funds.

Indian bond markets continued their post-budget rally as the promise to stick to the fiscal roadmap as well as the RBI policy has seen a complete turnaround in market sentiment. Benchmark 10 year fell by 10 bps during the month to end at 7.4%.

10 year G-Sec yield

7.4%

The US Fed has surprised with its dovish tone over the last couple of months. In its latest statement in April, it hinted at a possible next rate hike in June. At the same time, central banks in Japan and Europe have refrained from adding to their easing measures further. Dollar has lost ground against major currency partners in this period. Chinese economy has shown signs of rebound in activity after a fresh burst of lending by the banking system. India’s external accounts are likely to remain comfortable even as the BoP surplus has narrowed in the absence of large portfolio inflows. The Rupee, which had seen some weakness in the Rupee at the beginning of the year, has seen a sharp bounce-back in March and April. India’s relative macro outperformance continues in a difficult global environment. The recent macro and high frequency data indicate a gradual cyclical recovery is underway that should push GDP growth higher over the next year. However given the output gap that exists, we do not expect the growth revival to have any immediate pressure on inflation. Inflation trajectory remains within the RBI’s comfort zone, and further cushion on inflation should come as food inflation moderates. Fiscal consolidation is expected at both center and states levels in the ongoing financial year. Further, RBI is likely to undertake OMOs to support the liquidity situation. This should create a favorable demand-supply balance for government bonds. Thus while further policy rate cuts are likely limited, better transmission and changed liquidity stance, should lead to lower market rates over the next 12 months.

AXIS SHORT TERM FUND •



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 short dated G -sec spreads closely while making its allocations. In this month, the allocation to g-secs has been trimmed and replaced with 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.



The corporate bonds exposure remains in highly rated instruments.



The current duration of the fund is 1.7 years.

Average Maturity

Modified Duration Why Invest?

2.0 years

Yield to Maturity *

8.0

%

1.7

Actively Managed Short Duration Fund with Daily Liquidity Primary Asset Class^ e n d e a v o r s t o generate stable returns by following Short Term Debt & a high quality & M o n e y M a r k e t low-risk strategy Instruments years

AXIS FIXED INCOME OPPORTUNITIES FUND Average Maturity

Modified Duration



The fund is positioned to capture opportunities across credit and duration space while monitoring risk by controlling the overall portfolio duration.



The current duration of the fund is 1.4 years. The focus of the fund