Show me more results
Bond And Money Market

We present a matrix detailing some movement in some key market rates (domestic and global) and key events:

Parameters 31-Aug-20 31-July-20 31-Aug-19
RBI Repo Rate % 4.00 4.00 5.40
5Y AAA % 5.70 5.52 7.28
5Y AAA-5Y Gsec Spread bps# 40 53 102
10Y Gsec % 6.11 (5.94) 5.84 6.56
CPI (%) 6.93 6.09 3.15
IIP (FYTD) % -16.6 -34.7 3.6
US 10Y % 0.70 0.56 1.50
Japan 10Y % 0.04 0.02 -0.27
EUR 10Y % -0.39 -0.52 -0.70

Source: Bloomberg; Data as on August 31st, 2020,#- Gilt annualized

Debt Markets

The debt market witnessed a steady upwards bias through the month. The MPC pause on the monetary action and a hawkish drift of the members of the MPC in the minutes of the MPC and a strong inflation number caused the rates across credits and gilt to move steadily upwards. The 10-year gilt moved up from 5.83 percentage to around 6.15 through the month. A large devolvement on the primary dealers in the auction of GoI securities created a sense of discomfort in the market. The discomfort of the market was assuaged by a massive RBI “put” on the end of the month. The RBI announced a series of measures “to foster orderly market conditions.” It announced a simultaneous buying of longer dated securities and selling of shorter dated securities, a reduction in the cost of funds for banks who had availed of funds under long term repo operations (LTRO) from 5.15 percent to 4.00 percent, and an increase in Held till Maturity (HTM) limits for banks in SLR securities. This was indeed a big bang approach and almost signaled of an RBI discomfort with the rate rise in the markets. Subsequently the yields dropped sharply by around 25-30 basis points for both bonds and GoI Securities.

The money markets remained very stable through the month amidst a continued surplus liquidity situation.

The GDP numbers for the First quarter signaled a deep distress in the economy as the lockdown induced a sharp drop in the economic activity. As the GDP contracted by around 23.90 percent, it was broad based contraction across sectors and the agriculture growth was the only silver lining in the distress.

Retail Inflation continued to remain entrenched predominately due to the elevated food prices. FPI continued to remain net seller in the debt segment to the tune of around INR 600 crores in the month activity in debt and a cumulative sale of around INR 33000 crores in the current financial year.

Scheme strategy – Debt Schemes
  • Mahindra Manulife Low Duration Fund
  • Mahindra Manulife Ultra Short Term Fund
    • The average maturity of the portfolio moved down to around 140 days
    • We would continue to hover around and marginally increase the average maturity
    • The YTM of the portfolio dropped in the month and is around 4.25 %
    • With surplus liquidity conditions we expect the money market rates to remain benign
  • Mahindra Manulife Liquid Fund
    • We continue to maintain a healthy mix of certificate of deposits and commercial papers
    • We will attempt to ensure adequate liquidity, safety and accrual
  • Mahindra Manulife Credit Risk Fund
    • The portfolio continued to pare certain credits. We intend to hold the cash for some time in the future and redeploy the same as uncertainties recedes and investor confidence returns in debt markets
    • Credit Spreads continue to remain elevated for lower credit rated papers. The YTM of the portfolio has increased to around 7.50% because of rise in rates through the month
    • The Average Maturity of the portfolio was around 2.25 years with Modified Duration around 1.80
    • We will continue to take tactical approaches to duration in the future
Looking ahead
  • The MPC met again in August and kept all policy rates unchanged. While the bond yields inched up after the policy; the MPC reiterated that “the stance of monetary policy remains accommodative as long as it is necessary to revive growth”. It further said that “space for further monetary policy action in support of this stance is available, it is important to use it judiciously and opportunistically to maximise the beneficial effects for underlying economic activity.”
  • RBI may be following a global playbook of keeping a low (suppressed) interest rate environment despite a potential high inflation. While the argument in favor of the approach of the RBI signaling low rate environment remains in the construct of the current inflation being supply driven, it would certainly worry market players
  • While we are tempted to align the portfolio to “coattail “the RBI move, we remain extremely apprehensive of a gradual rate rise as move through the nest year
  • What is interesting in the term structure of the Gilt yield curve. The steepness of the curve depicted by the difference in 5-year gilt and 10-year gilt is around 80 basis points (bps) . This steepness is an outlier in the last two decades and the probability of mean reversion has interesting implications in the portfolio construction
  • We would be careful on supply constrained induced commodity inflation
  • While AAA credits have rallied meaningfully in the last quarter, we believe a large part of the rally was the LTRO induced. As banks gradually move away from the LTRO buying, it would be interesting to watch the trajectory of AAA credits. The further drop in yields of AAA credits have made the AAA credit spreads very tight and they appear to be richly priced now.
  • Liquidity being in sustained surplus mode, all short term categories would be an investor choice
  • While RBI and the Government’s measures seem to have a positive effect on the borrowings of NBFCs, Non PSU financial services credits would require a careful look and the bias towards strong parentage would continue
Equity Markets

We present charts tracking domestic index and sector, and global indices movements:

India Index
S&P BSE SENSEX Index Nifty 50 BSE Midcap BSE Smallcap Nifty Midcap 100 Nifty Smallcap 100
1 Month 2.7% 2.8% 6.6% 10.1% 7.8% 11.5%
1 Year 3.5% 3.3% 8.9% 14.4% 6.6% 2.6%
World Index
DOW JONES INDUS. AVG S&P 500 Index NASDAQ Composite Index
1 Month 7.6% 7.0% 9.6%
1 Year 7.7% 19.6% 47.9%

Source: Bloomberg Performance - Absolute returns | Data as on August 31, 2020

Equity Market update

The global equity markets continued its buoyancy, led by USA. Indian Equity markets too followed with a meaningful outperformance lead by Mid and small cap. Nifty gained marginally by 2.8% while Nifty Midcap 100 and Nifty Small cap 100 indices gained by 7.8% and 11.5% respectively. Sectors which outperformed in the last month were Financials, Auto and followed by Metals

As we stated in our last monthly newsletter, Globally equities rallied on the positive sentiments, on Covid-19 vaccine development efforts and continue liquidity lead by central banks to support economy. The minutes of the US Fed meeting released during the month pointed to a lower rate regime for a longer period of time as the economic conditions remained challenging. As we are observing the liquidity supported by Fed is going less into economy re-building and more into asset valuations being propped up.

The GDP growth data were released this month across the countries for the April-June quarter wherein the intensity of virus led lockdown was felt across. India GDP for the quarter showed a 23.9% contraction on a YoY basis. Undoubtedly, India which has among the most stringent lockdown has among the highest impact. Post the Q1FY21 data, the estimates for FY21 full year have been downgraded to around 10%. The contraction is broad based with only the agriculture sector growing at 3.5% as the silver lining. The issue currently faced by the economy is that as the cases of corona virus spreads are still increasing in India the economic activities remains constrained. Economy is operating in range of 70-90% as compared to same period last year and hence recovery getting deferred and economic distress may elongate.

The last day of August witnessed a sharp fall in the index, led by some reports about some border issue and conflicts at India – China border. Also the market reacted on the implementation of new trading regulations for retail investors. The economic implication of any escalation could be severe especially when we are already impacted from corona led economic distress.

In the recent past global investors have been showing their liking towards Indian markets; be it FPI route or FDI route. Quite a few listed companies have done large fund raising in last quarter and few other are expected to raise in the coming quarters . We are also observing some positive node in FDI flows, with investments flowing in to buy existing assets REIT, INVIT and Buy outs. The inflow of money has been quite strong and RBI has let the rupee appreciate in recent past. These inflows provide a reassurance about the long term potential of Indian economy and markets especially when the money has come during the worst economic conditions in past quarters. It also gives a sense of direction to Indian investors to really look at that longer time frame where economic growth resumes and creates wealth for investors with patience.

Scheme Specific Strategies for Equity Schemes
  • Mahindra Manulife Multi Cap Badhat Yojana
  • Mahindra Manulife Mid Cap Unnati Yojana

    This scheme among other things would aim to invest in companies that have a strong product line and leadership position in that sector and can take advantage of the India’s growth story. The portfolio will focus on mid-cap stocks apart from some exposure to small and large-cap stocks. The portfolio will have a mix of top-down and bottom-up approach to investing, depending on market conditions.

  • Mahindra Manulife ELSS Kar Bachat Yojana

    The portfolio will have allocation to stocks across market capitalization and may focus on companies that have the power to take advantage of the opportunities the economy offers. The stocks in the portfolio are likely to have a superior product line, manageable debt and leadership in their respective sectors.

  • Mahindra Manulife Rural Bharat and Consumption Yojana

    The portfolio is a focused portfolio with around 30 stocks. The aim of the portfolio is to have a rural bias and look for opportunities in rural consumption, rural infrastructure and rural lending.

  • Mahindra Manulife Large Cap Pragati Yojana:

    The portfolio is a focused portfolio with around 25 -30 stocks. A top-down approach would be adopted to identify sectors with potential across different periods based on emerging macro trends. In addition, a bottom-up stock selection would also be followed, to identify companies with good governance and strong leadership

  • Mahindra Manulife Top 250 Nivesh Yojana:

    The scheme focusses on investing in companies that have demonstrated strong leadership and sustained growth. The portfolio has a focus on large caps and midcaps which are currently at around 51% and 43% of net equity holdings respectively.

Scheme Specific Strategies For Hybrid Schemes
  • Mahindra Manulife Hybrid Equity Nivesh Yojana
  • Mahindra Manulife Equity Savings Dhan Sanchay Yojana

    Equity:

    • The approach of the portfolio would be to minimize the volatility and provide steady returns
    • The portfolio may have a large-cap bias that focusses on growth stocks having reasonable valuations and value-stocks having a near to medium-term trigger

    Debt:

    • The Modified duration of the portfolio is around to 4.00
    • We will continue with the current split between credits and sovereigns
Looking ahead

In a significant policy announcement, Government announced plans on defence procurement with focus on domestic industry as supplier. This is further to series of steps taken in past quarter towards “Aatmanirbhar Bharat”

We expect investments made likely to revive capex cycle, create credit growth as well as create jobs in the medium to long term.

Considering the time-gap between potential of structural upside and near-term concerns for FY21, we believe that market volatility is likely to remain and this period may be utilised for increasing the asset allocations to equities through SIPs. The lumpsum route may be utilised to top-up on the SIPs during the fearful times amidst the volatility.

Webcast
Equity Market Outlook
Debt Market Outlook
Scheme Name Product Suitability Riskometer
Mahindra Manulife Liquid Fund
An Open Ended Liquid scheme
This Product is suitable for investors who are seeking*:
  • Regular income over short term
  • Investment in money market and debt instruments
Mahindra Manulife Low Duration Fund
An open ended debt scheme - An open ended low duration debt scheme investing in instruments such that the Macaulay duration of the Portfolio is between 6 months and 12 months (Please refer page 31 of SID)
This Product is suitable for investors who are seeking*:
  • Regular income over short term
  • Investment in money market and debt instruments
Mahindra Manulife Ultra Short Term Fund
An open ended ultra-short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 to 6 months (please refer to page no. 31 of SID)
This Product is suitable for investors who are seeking*:
  • Regular Income over short term.
  • Investment in a portfolio of short term debt and money market instruments.
Mahindra Manulife Credit Risk Fund
An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds)
This Product is suitable for investors who are seeking*:
  • To generate regular returns and capital appreciation over medium term.
  • Investment predominantly in AA and below rated corporate bonds, debt, government securities and money market instruments while maintaining the optimum balance of yield, safety and liquidity.
Mahindra Manulife ELSS Kar Bachat Yojana
An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation
  • Investment predominantly in equity and equity related securities
Mahindra Manulife Top 250 Nivesh Yojana
Large & Mid Cap Fund - An open ended equity scheme investing in both large cap and mid cap stocks
This Product is suitable for investors who are seeking*:
  • Long term wealth creation and income
  • Investment predominantly in equity and equity related securities of large and Mid cap companies.
Mahindra Manulife Equity Savings Dhan Sanchay Yojana
An open ended scheme investing in equity, arbitrage and debt
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation and generation of income
  • Investment in equity and equity related instruments, arbitrage opportunities and debt and money market instruments
Mahindra Manulife Multi Cap Badhat Yojana
Multi Cap Fund- An open ended equity scheme investing across large cap, mid cap, small cap stocks
This Product is suitable for investors who are seeking*:
  • Medium to Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives.
Mahindra Manulife Mid Cap Unnati Yojana
Mid Cap Fund – An open ended equity scheme predominantly investing in mid cap stocks
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives of mid cap companies
Mahindra Manulife Large Cap Pragati Yojana
Large Cap Fund - An open ended equity scheme predominantly investing in large cap stocks
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives of large cap companies.
Mahindra Manulife Hybrid Equity Nivesh Yojana
An open ended hybrid scheme investing predominantly in equity and equity related instruments
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation and generation of income;
  • Investment in equity and equity related instruments and debt and money market instruments
Mahindra Manulife Rural Bharat and Consumption Yojana
An open ended scheme following Rural India theme
This Product is suitable for investors who are seeking*:
  • Long term capital appreciation;
  • Investment predominantly in equity and equity related securities including derivatives of entities engaged in and/ or expected to benefit from the growth in rural India.

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them

The views expressed here in this material are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. This material has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While utmost care has been exercised while preparing this material, Mahindra Manulife Investment Management Private Limited (formerly known as Mahindra Asset Management Company Private Limited) (AMC) does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The data/statistics given in this material are to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Readers of this material should rely on information / data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Neither Mahindra Manulife Mutual Fund, the AMC nor Mahindra Manulife Trustee Private Limited (formerly known as Mahindra Trustee Company Private Limited), its directors or associates shall be liable for any damages that may arise from the use of the information contained herein.

Cno. 00810

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