Debt Outlook - May 2016 - Axis Mutual Fund

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Modified Duration. 4.7. Average Maturity. 7.7 years years. Across all fixed income instruments. Why Invest? “Go Anywhe
FIXED INCOME OUTLOOK JUNE 2016

7.6%

4.9%

7.5

% 10 yr G-Sec : Last 1 year

QUICK take

7.5% 6.5%

5.4% 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 were little changed for the month of May after witnessing a large postbudget rally in March and April. Benchmark 10 year ended the month of May at 7.5%. April CPI Inflation surprised negatively as inflation moved up to 5.4% from 4.8% in the previous month (mainly on account of food inflation). Core CPI nudged up as well to 4.9%. Broad inflation trajectory remains within the RBI’s comfort zone, and further cushion on inflation should come as food inflation moderates. RBI is expected to leave rates unchanged in its upcoming policy review in June.

10 year G-Sec yield

7.5%

Following the announcement of its new liquidity framework, the RBI has initiated the process of adding system liquidity through open market operations (Approximately INR 40000 crores. of OMO’s done in the month of May). As a result system liquidity has improved significantly. Market yields have not reacted to the improvement in liquidity as this has been balanced with concerns on US rate hike and rising crude as well as inflation uncertainties before the onset of monsoon. The US Fed is widely expected to raise rates in its June meeting even as US and global growth remains tepid. Global bond yields continue to trade at the lower end of their range of the last 6 months. India’s external accounts are likely to remain comfortable even as the BoP surplus has narrowed in the absence of large portfolio inflows. India has seen significant addition to its foreign reserves over the last 2 years which provides it with high level of external resilience. The Rupee after a period of disproportionate strength in 2014, has been broadly tracking other Asian currencies in the last few months. India’s relative macro outperformance continues in a difficult global environment. Q4 GDP growth came at 7.9% which was better than the Q3 number of 7.2%. Growth was led by consumption while investment remained a drag. The gradual cyclical recovery should push GDP growth further 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. The yield curve continues to show a large positive slope relative to the flat curve that existed 1 year ago. The steepness is presenting an opportunity in the 3-5 year corporate bond segment. 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. The portfolio allocation continues to be in 3-5 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.



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?

1.7

2.0 years

Yield to Maturity *

7.94

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 1.6 years. The focus of the fund is to capture the compression in 3-5 year corporate bonds and also have a higher accrual.



The portfolio allocation continues to be in 3-5 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.

Why Invest?

1.6

1.8 years

Yield to Maturity *

8.31

To c a p t u r e opportunities across accrual, credit and Primary Asset Class^ duration space. Monitors risk by Across all fixed c ontrolling the income instruments s u c h t h a t t h e overall portfolio portfolio duration is duration within 3 yrs years

%

AXIS INCOME FUND •





The fund is positioned to benefit from its core allocation in corporate bonds in the 3-5 year space. Dynamic duration management is carried out using G-sec allocation (currently around 27 %) The portfolio stance is expected to benefit from the change in liquidity regime of RBI over next 12 months and transmission of previous rate cuts. The fund focuses on maintaining a high quality bias in its corporate bond portfolio. The portfolio design should help generate stable returns while bringing down volatility relative to a longer duration fund. Currently, the fund has duration of around 4.3 years.

Average Maturity

Modified Duration

6.7

4.3

years

Yield to Maturity *

8.08

%

Why Invest?

Active Management within a duration range suitable for a Primary Asset Class^ falling interest rate environment Primarily long dated Corporate Bonds & G-Sec years

AXIS DYNAMIC BOND FUND Average Maturity

Modified Duration

7.7

4.7

years

Yield to Maturity *

8.00

%

Why Invest?

“Go Anywhere” actively managed Fund following a Primary Asset Class^ Best Ideas approach and can move across Across all fixed the yield curve income instruments



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.



Active duration management over the last few months as the markets turned volatile has created significant alpha for the fund. Currently the fund’s duration is 4.7 yrs.

years

* The yield to maturity given above is based on the portfolio of funds as on May 31, 2016. 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. ^Note: Allocation & duration is based on the current market conditions and is subject to changes depending on the fund manager’s view of the markets.

FIXED INCOME OUTLOOK JUNE 2016

AT A GLANCE Axis Liquid Fund

Axis Treasury Advantage Fund

Axis Banking Debt Fund

Axis Short Term Fund

Axis Fixed Income Opportunities Fund

Axis Income Fund

Axis Dynamic Bond Fund

Axis Constant Maturity 10 Year Fund

Cash Management

For spare cash in your Bank Account

Short term fund with high quality portfolio

Actively Managed Short Duration Fund with Daily Liquidity

To capture opportunities across accrual, credit and duration space

Active Management within a duration range suitable for a falling interest rate environment

“Go Anywhere” Fund following a Best Ideas Approach

To target a specific duration

Money Market Instruments