The Reserve Bank of India (RBI) slash repo rate in the August monetary policy by 35 bps to 5.40% higher than the market expectations of 25bp cut.

Consumer Price Index (CPI) inflation is projected at 3.1% for Q2FY20 and 3.5-3.7% for H2FY20, for Q1FY21 is projected at 3.6%, largely unchanged from June policy.

In order to ease liquidity, RBI decided to raise bank’s exposure limit to a single NBFC to 20% of Tier-I capital of the bank.

The RBI is maintaining its accommodative stance to Growth while remaining consistent with the inflation mandate. Impact of past rate cuts are being gradually transmitted to the real economy.

Outlook

Long term sovereign bonds have noticed a significant rally as a result of past rate cuts and there is a possibility that the corporate bonds may catch up and thus 1-3 year AAA corporate bonds might look attractive on a risk reward basis.

There is a possibility that persistent low inflation and subdued global growth may provide space for more liquidity easing, without creating macro risks.

Source: Bloomberg, ABSL AMC Internal Research

Portfolio Action

Aditya Birla Sun Life Short Term Opportunities Fund (An open ended short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1-3 years):

The fund has a good quality accrual portfolio. Global growth outlook remains benign with the protracted US-China trade tensions. Domestic growth and inflation outlook is also benign. These factors remain supportive for bonds. However, crude uptick and fiscal slippage are the risks.

Aditya Birla Sun Life Credit Risk Fund (formerly known as Aditya Birla Sun Life Corporate Bond Fund) (An open ended debt scheme predominantly investing in AA and below rated corporate bonds):

The fund has a diversified accrual portfolio with adequate liquidity. We have been careful in adding adequate security layers, in the form of collaterals and covenants, while underwriting trades. Long term investors may continue to invest in the fund.

Aditya Birla Sun Life Medium Term Plan (An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3-4 years):

We have been managing this fund with the dual objective of building a good quality accrual portfolio along with managing the duration actively. We aim to add credit structures to our fund whenever appropriate opportunities appear in the credit markets.

All the data mentioned above is as on July 31st, 2019

Aditya Birla Sun Life AMC Ltd /Aditya Birla Sun Life Mutual Fund is not guaranteeing/offering/communicating any indicative yield/returns on investments

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