India consumer price index (CPI) inflation rose marginally to 3.05% in May 2019 compared with 2.92% in April 2019. GDP data for Q4FY19 was lower than expectations with GVA and GDP recorded as 5.7% and 5.8% respectively.

Reserve Bank of India (RBI) June 2nd bi-monthly policy turned out to be dovish with a 25bp rate cut and stance change to accommodative. The tone of the policy was quite dovish and clearly highlighted growth concerns.

RBI also assured market of adequate liquidity in the system. RBI stated that it is closely monitoring the situation and will ensure well-functioning of the NBFC sector and stability of the financial system.

Trade deficit for April increased as compared to that in March. The rise in trade deficit was due to seasonality, weakness in exports and rise in gold imports.

Outlook

With change in RBI stance to “accommodative”, possibility of further rate cuts & revisiting the existing liquidity framework by RBI over next two month, focus now shifts to effective policy transmission and support growth till inflation remains within target range.

This may benefit short term papers up to 3 years, which still are quite lucrative from spreads basis especially for AAA corporate bonds.

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 International Monetary Fund (IMF) reducing the global growth forecast and the protracted US-China trade tensions. Domestic growth and inflation outlook is also benign. These factors remain supportive for bonds. However, crude uptick is a risk.

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 31st May 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.