Monthly Fixed Income Update September'19

Sep 27, 2019

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Consumer Price Index (CPI) inflation for August 2019 came in line with expectations at 3.21%. Core inflation eased to 4.2% while food inflation rose to 2.99% in August 2019.

India's GDP for Q1FY20 came at 5%, significantly lower than the market expectation of 5.7%. Private consumption plunged and imports were also down.

Nominal GDP growth plunged to 8.0% YOY. Weakness in nominal GDP likely to negatively impact tax collections, corporate profitability and make the current debt & credit stress even more acute.

On YOY basis, exports growth remained disappointing and was negative for sectors like agriculture, textiles & leather, petroleum products and gems & jewellery.

Outlook

With Global growth and Local growth surprising policymakers towards the downside and inflation remaining low, there is a possibility of further room for RBI to ease rates.

RBI in June policy indicated to relook the liquidity framework in order to facilitate better transmission which in turn may be critical given the stance of RBI is “accommodative”.

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 August 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.

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