Debt funds & picks

May 2016

Index

Macro wrap
Debt market wrap
Debt market view
Fund recommendations
Selection criteria

Macro wrap: Indian inflation

Consumer prices in India went up by 5.39% year on year (YoY) in April of 2016, accelerating from a 4.83% rise in
the previous month and higher-than-market expectation of 5%.
Food inflation also reached a three-month high. The cost of food and beverages rose 6.21% YoY (5.27% in March),
provisional estimates showed. The food index alone accelerated to 6.32% as compared with 5.21% in the previous
month.
The cost of clothing and footwear went up 5.56%
5 56% YoY (5.27%
(5 27% in March); fuel and light rose 3.03%
3 03% (3.38%);
(3 38%); and
housing prices increased 5.37% (5.31%).
A year ago, the inflation rate was lower at 4.87%.

Macro wrap: Industrial production

Industrial output in India increased by a meagre 0.1% YoY in March of 2016, slowing sharply from a 2% rise in the
previous month and much lower than the market expectation of a 2.5% gain.
Manufacturing shrank 1.2% with production of electrical machinery & apparatus falling the most (-36.2%),
followed by food products and beverages (-15%) and publishing, printing and reproduction of recorded media
(-9.9%).
In addition, the mining sector fell by 0.1% while electricity production jumped 11.3%.

10-year bond movement

Debt market wrap

Liquidity
Systemic liquidity was mostly comfortable during the week, with the call money rate remaining
below the repo rate. The borrowing rate settled at 6.25% on May 6 as against 6.20% on April 7.
Inflows from the governments month-end spending, coupled with fund infusions from the RBI in
the form of repo auctions ensured that banks had sufficient funds.
The apex bank conducted four repo auctions during the week. An overnight and 14-day term repo
auction were conducted in the first two sessions for a combined notified amount of Rs33,500
,
crore.
In the last session of the week, the central bank conducted two repo auctions of 14-day and 4day durations, disbursing a further Rs33,500 crore into the banking system.
In the first half of the week, the call rate rose briefly owing to redemption of term repo auctions
held in earlier sessions and due to outflows related to payment of gilts purchased in the previous
weeks g
gilt sale.

Debt market wrap

Bonds and currency movement

Government bonds remained locked in a tight range in the absence of strong triggers. The yield
of the 10-year benchmark 7.59% 2026 paper settled at 7.44% on May 6, broadly unchanged from
that of April 7.
Intra-week, bond prices fluctuated tracking movement in global crude oil prices, the US
benchmark treasury yields and the rupees exchange rate against the dollar.
Prices also dipped marginally as market players trimmed positions to absorb the fresh supply of
papers from the weeks bond auction. In the gilt sale, the banking regulator auctioned the 7.35%
2024 paper,
paper the 7.73%
7 73% 2034 paper,
paper the 8.13%
8 13% 2045 paper and a new security maturing in 2030 for
a total notified Rs15,000 crore. The coupon rate for the new gilt has been set at 7.61%.
Prices were kept in check in the last session as market players awaited the release of US nonfarm payrolls data.
The rupee weakened against the US dollar owing to both domestic and overseas factors. The
rupee was put under pressure at the start of the week as Indias latest manufacturing PMI figures
prompted outflows from domestic equities.
Dollar demand from state-owned banks on behalf of importers also pulled the rupee down.

Debt market outlook

The latest reading on CPI inflation and industrial production was a double whammy as growth
numbers were lower than estimates and inflation was higher.
The next big trigger for bond prices could be monsoon.
We would suggest a mix of 60:40 allocation mix between short-term/accrual and duration
funds.

Recommendations & performanceaccrual funds

Performance as on May 9, 2016

Recommendations & performanceduration funds

* Less than 1-year simple annualised returns, greater than 1-year compound annualised returns
Performance as on May 9, 2016

Fund picks: Across categories

Ultra short-term funds

Liquid funds

Performance as on 9th, May,2016

Annexure: Criteria for scheme selection

Selection among the top rated 4-5 AMCs with a proven track record in debt

Selection out
o t of this lot,
lot unless
nless a strategy
strateg is compelling based on interaction with
ith a
outside of this universe

Track record of at least 2 years of existence for the fund though there could be some
exceptions at times

Threshold AUM of at least Rs200 crore and above, though at times strategy would merit
consideration as an exception

S
Superior
i risk
i k adjusted
dj t d returns
t

AMC

Disclaimer
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Thank You