In India the strong growth momentum in the beginning of 2018 moderated in H2 driven by weakness in private consumption and exports. However, moderate growth uptick towards 7.2% to 7.5% growth is expected in FY20, with stable government post elections and only a moderate global growth slowdown.

Given low investments in last few years, capacity utilization has risen to highest level since 2012. While public capex into infrastructure continue to drive investments, we are witnessing early signs of revival in private capex as well.

Decline in crude price could improve current account deficit to 2 to 2.5% of GDP. Capital flows, however, shall remain volatile driven by volatile global markets and May General elections.

AAA Corp spreads may have peaked for near term. Reserve Bank of India’s (RBI’s) focus istowards turning liquidity in system neutral from deficit.

The liquidity premia in short end is too high and does not correspond to current macro and RBI stance. 1-2 year bonds yields should come down.

Outlook

Overall it is expected that 2019 will be characterized by slower global growth but better local growth and neutral rates, amidst global and domestic political uncertainties.Overall we expect volatility to stay elevated and we will continue to be nimble footed in our portfolio actions.

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.Regular Open Market Operations (OMOs) by RBI has given a positive twist to the bond market. CPI numbers have also been surprising on the lower side.But market is cautious during this election year related populist measures and corresponding fiscal slip.

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.Presently, given the current circumstances, we have become a bit more cautious while making investments.

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.In the past, several interesting opportunities have presented themselves in the credit markets and we have benefited by adding some credit structures in our funds.Presently, given the current circumstances, we have become a bit cautious and have increased G-sec allocation in the portfolio.\

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.

All the data mentioned above is as on 31^st December, 2018