• Most high frequency indicators suggest decent growth momentum in Indian economy. July Purchasing Managers' Index (PMI) data was positive with composite PMI rising for the second consecutive month at 54.1, highest level since demonetization.
• Inflation came at 5%, which was a positive surprise to the markets. The trade deficit rose in June, The uptick was both due to continuous uptick in oil imports, and rise in non- oil, non-gold imports.
• Reserve Bank of India’s (RBI) rate hike at the start of new month failed to dampen the enthusiasm as it was more than expected by markets and in fact we saw a small rally post RBI hike as policy statement were taken as less hawkish than expected.
• In July, we finally saw rally across curves as Govt securities rallied by 10-15 bps and AAA corporate bond rallied by 15-20 bps during the month.

Outlook

• On different fund portfolios we have tactically built exposure in liquid Govt securities in view of the above factors. We remain vigilant on our portfolio while being actively positioned to take advantage of any opportunity across the curves.

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):
  
  Global cues continued to drive long term rate expectations in August. Our assessment continues to suggest that shorter end of the curve is pricing excessive pessimism. The issuance of the corporate bonds has been on the lower side in the past few months.
• 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):
  
  We continue to build exposure towards high yield papers (below AA rated) which are offering good risk reward proposition. Such papers offer opportunities to build customized structures. We intend to keep adding credit structures with adequate covenants to mitigate risk.
• 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 last few months, several interesting opportunities have presented themselves in the credit markets and we have benefited by adding some credit structures in our funds. Regulators are also taking active interest in developing various facets of corporate bond markets like liquidity, new classes of issuance etc. which will result in healthy activity in the credit market.