Monthly Market Outlook
May 2019
Equity & Fixed Income Outlook
Monthly Market Outlook
August 2019
Global Indices Performance
• UK Markets were up by 2.2%
owing to a weaker currency
against the dollar. A weaker
currency pushes the index up
since it comprises of
international mining and oil
stocks which majorly trade in
US Dollars
• South Korea and Indian markets
ended in negative terrain due to
the on-going trade dispute with
Japan and slowdown concerns
respectively.
Germany - DAX Index; China - SSE Composite Index; France - CAC 40 Index; Japan - Nikkei; Eurozone - Euronext 100; Hong Kong - HangSeng; US - Dow Jones; Singapore - Strait Times; Russia - RTS Index; Indonesia - Jakarta
Composite Index; U.K. - FTSE; South Korea - Kospi; Brazil - Ibovespa Sao Paulo Index; Indonesia – Jakarta Composite Index; Switzerland – Swiss Market Index; Taiwan – Taiwan Stock Exchange Corporation; India – S&P BSE
Sensex; Returns in % terms. Data Source: MFI & ACEMF; Returns are absolute returns for the index calculated between June 28, 2019 – July 31, 2019. Past performance may or may not be sustained in future
2
2.2
1.2 1.0 0.9 0.9 0.8 0.5
0.2
-0.4 -0.6
-1.5 -1.6 -1.7
-2.7
-4.9 -5.0 -6
-5
-4
-3
-2
-1
0
1
2
3
UK
Japan
US
Europe
Taiw
an
Brazil
In
donesia
Sw
itzerla
nd
France
Sin
gapore
Russia
Chin
a
Germ
any
Hong K
ong
India
South K
orea
Returns (
%)
Returns Performance - July 2019
Sectoral Indices Performance - India
All indices are of S&P BSE and carry the prefix of S&P BSE; Abbreviated CD - S&P BSE Consumer Durables; CG - S&P BSE Capital Goods; FMCG - S&P BSE Fast Moving Consumer Goods; HC - S&P BSE Health Care; Infra. - S&P BSE
India Infrastructure; IT - S&P BSE Information Technology, NBFC – Non-banking Finance Companies. Data Source: MFI, ACEMF ; Returns are absolute returns for the TRI variant of the index calculated between June 28, 2019 – July
31, 2019; YTD – Year To Date. Past performance may or may not be sustained in future. The sectors mentioned in this slide do not constitute any recommendation and ICICI Prudential Mutual Fund may or may not have any future
position in this sectors.
3
• Over the month, IT Services
delivered marginal positive
returns (+0.8%)
• Overall performance across
sectors was negative due to
domestic demand softening
and growth concerns
0.8
-1.1
-2.6
-5.7 -6.0 -6.4 -6.8 -7.6
-8.4 -8.8
-10.6 -10.8
-12.1 -12.6 -12.9
-14.1 -16
-12
-8
-4
0
4
IT
HC
FM
CG
Realt
y
Pow
er
Bankex
Fin
an
ce
Tele
com
Basic
Materia
ls
Energy
Oil &
Gas
CG
Metal
Infra
Auto
CD
Returns (
%)
Returns Performance - July 2019
OUR EQUITY OUTLOOK:
SHORT TERM VOLATILITY TO PREVAIL.
LONG TERM GROWTH STORY REMAINS INTACT.
4
Growth Concerns
5
Indian Economy slowed down in Q4FY19 to 5.8% from 6.6% in Q3FY19 and 7.7% in Q4FY18
Source: CRISIL Research; Data as of March 31, 2019; GDP – Gross Domestic Product
7.0%
7.7% 8.0%
7.0% 6.6%
5.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19
GD
P (
%)
GDP Data
BREAKING DOWN GDP NUMBERS
6
GDP Components
7
I = INVESTMENT
NX = NET EXPORTS
C = CONSUMPTION
G = GOVERNMENT SPENDING
GDP = C + I + G + NX
C = Consumption
8
Consumption indicators are currently indicating a slowdown
Source: Morgan Stanley Research. Data as of June 30, 2019.
Parameters
YoY Change (%)
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19
Consumer Durable Goods Production 2.5 0.9 -3.1 2.2 -0.1 -
Domestic 2-Wheeler Sales -5.2 -4.2 -17.3 -16.4 -6.7 -11.7
Domestic Passenger Vehicle Sales -1.9 -1.1 -3.0 -17.1 -20.5 -17.5
Air Passengers Flown 8.4 4.5 -1.1 -5.4 -0.7 -
Personal Loans 16.9 16.7 16.4 15.7 16.9 -
Petrol Consumption 8.3 12.6 9.2 9.9 13.2 12.7
Rural Wages 4.0 4.0 3.9 3.9 4.2 -
I = Investments
9
Private Projects under implementation are declining
Source: Morgan Stanley Research. Data as of June 30, 2019. YoY – Year-on-Year
0.7
3.7
1.4
-4.4
-5
-4
-3
-2
-1
0
1
2
3
4
5
Oct-1
8
No
v-18
Dec-18
Jan-1
9
Feb-1
9
Mar-19
Apr-19
May-19
Jun-1
9
Private Capex - YoY Change (%)
10 Source: CRISIL. Data as of June 30, 2019
G = Government Spending
6,50,731
7,07,647 7,21,705
68,328 86,988 63,000
-
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
6,00,000
7,00,000
8,00,000
Government Spending (In Crs)
Total Expenditure (Revenue + Capital) In Crs. Capital Expenditure (In Crs)
Jun-17 Jun-18 Jun-19
Total Government Expenditure growth was marginally higher (2%) on a Year on Year basis while Capital
Expenditure growth declined 27.6% on a Year on Year basis.
11
NX = Net Export
Goods exported as well as imported have declined Year on Year indicating demand softening on global
as well as domestic level
Source: Morgan Stanley Research. Data as of June 30, 2019.
-9.7
-9.1
-15
-10
-5
0
5
10
15
20
25
Oct-18
No
v-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Ju
n-19
Export Numbers - YoY Change (%)
Goods Exported Goods Imported
12
Long Term Growth Triggers
Easy Monetary Policy
The RBI is expected to cut rates to
boost liquidity and subsequently
growth
Indian Market Valuations
Barring few mega caps, most stocks
are reasonably valued. Hence,
making a case for investments from
a long term perspective
Exports
India is poised to benefit from
US-China Trade tension since there is a
gradual shift in exports to the US from
China to India
Demographic Advantage
India has a demographic edge over
other countries and can reap the
benefits of shift in the export share
from China to India in future
13
Long Term Growth Triggers – Exports
Source: Morgan Stanley Research. Data for US Exports as of May 2019. Data for world exports as of April 2019
India has gained market share in the US export market since
Dec-18 (onset of US-China Trade War)
amongst other Asian countries
-3.8%
0.0%
0.0%
0.0%
0.2%
0.3%
0.3%
0.4%
-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0%
China
Thailand
Malaysia
Singapore
Korea
Taiwan
India
Vietnam
Share gained/lost by each Asian exporter in the US
imports market
(change as % of total US imports)
Since Dec-18
India has gained significant market share in the world export
market since Dec-18 (onset of US-China Trade War)
amongst other Asian countries
-0.9%
-0.2%
-0.1%
0.0%
-0.1%
0.0%
0.1%
-1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2%
China
Korea
Taiwan
Thailand
Singapore
Vietnam
Malaysia
India
Share gained/lost by each Asian exporter in the world
export market
(change as % of world exports)
Since Dec-18
14
Long Term Growth Triggers –
Easy Monetary Policy
RBI has delivered 75 bps rate cut in CY‟19 and is expected to reduce rates further thereby increasing
liquidity in the system. This would further boost demand and subsequently growth.
6.50
6.25
6.00
5.75
5.20
5.50
5.80
6.10
6.40
6.70
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-1
9
Ju
n-19
Ju
l-19
Repo Rate (%)
Source: CRISIL Research. Data as of July 31, 2019.
15
Long Term Growth Triggers –
Demographic Advantage
India‟s working age as a % of China‟s working age is 88%. India has a demographic edge over other
countries and can reap the benefits of shift in the export share from China to India.
0% 1% 2% 2% 2% 4% 5% 7% 7% 8% 8% 10% 14%
18% 21%
88%
0%
20%
40%
60%
80%
100%
Sin
gapore
Hong K
ong
Taiw
an
Mala
ysia
Canada
Korea
Th
ailand
Philip
pin
es
Vie
tnam
Japan
Mex
ico
Russia
Brazil
In
donesia
Unit
ed S
tates
In
dia
India‟s working age as % of China's working age
Source: UBS. As on Dec-18
16
Long Term Growth Triggers –
Market cap to GDP
India‟s Market cap to GDP currently stands at 72.5% which is below its historic average of 80.7%.
A reading over 100 indicates that the markets are overvalued
whereas a reading below indicates markets are undervalued
Source: Edelweiss Research. Data as of July 31, 2019
50
60
70
80
90
100
110
120
130
Jul-
09
Jan-10
Jul-
10
Jan-11
Jul-
11
Jan-12
Jul-
12
Jan-13
Jul-
13
Jan-14
Jul-
14
Jan-15
Jul-
15
Jan-16
Jul-
16
Jan-17
Jul-
17
Jan-18
Jul-
18
Jan-19
Jul-
19
(%
)
India Market cap to GDP ratio vis-à-vis 10 year average
Average: 80.7
72.5
Equity Valuations Update:
Indifferent towards
Largecap, Midcap & Smallcap
17
Nifty 50 Valuations & Earnings Growth
18
-30
-20
-10
0
10
20
30
40
50
0
5
10
15
20
25
30
Mar-07
Dec-08
Sep-10
Jun-12
Mar-14
Dec-15
Sep-17
Jun-19
EP
S G
row
th Y
oY
(%
)
Nif
ty 5
0 P
E
Valuations Vs. Earnings Growth
Nifty 50 PE EPS Growth YoY (%)
P/E: Price to Earnings. Source : Motilal Oswal, Data as of June 30, 2019. Past performance may or may not sustain in future
Post the rally in the large cap space, valuations are fully priced in and earnings growth is yet
to pick-up
Nifty Midcap Valuations
19 PBV – Price to Book Value. Source : Motilal Oswal, Data as of June 30, 2019
1.96
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Nif
ty M
idcap 1
00 P
/B
V
Nifty Midcap 100 Price to Book Value
Nifty Midcap PBV Long Term Average
Post the recent correction in the mid & small cap space (refer subsequent slide), we
recommend Mid and Smallcap allocation in a staggered manner.
Market Cap Analysis
20
Share in the Overall Market Cap (%)
Index 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mar-19 Jun-19 Jul-19
Top-100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73 73
101-250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16 16
Above
250 12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12.1 11.7 11
Top 100 indicates top 100 companies by market capitalization,101-250 indicates next 150 companies by market cap and above 250 indicates 251st
onwards by marketcap.
Source : Kotak Research , Data as of July 31, 2019
Valuations –
Divergence between Growth and Value Stocks
21 Source: Morgan Stanley; Data as of June 30, 2019
Value and special
situation themes
expected to play out
due to significant
disconnect between
price and value in
many „Growth‟ and
„Value‟ stocks
31.5
21.7
10
15
20
25
30
35
Ju
n-14
Sep-14
Dec-14
Mar-15
Ju
n-15
Sep-15
Dec-15
Mar-16
Ju
n-16
Sep-16
Dec-16
Mar-17
Ju
n-17
Sep-17
Dec-17
Mar-18
Ju
n-18
Sep-18
Dec-18
Mar-19
Ju
n-19
P/E ratio of MSCI India growth and MSCI India value
indices, 2014-19 (%)
MSCI Growth Index MSCI Value Index
22
Nifty Earnings Yield and Bond Yield
Source: Kotak Research. Data as of July 31, 2019
The gap between equity and bond yields have narrowed owing to
a large decline in domestic bond yields and due to correction in equity markets
(4.0)
(3.0)
(2.0)
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
4
5
6
7
8
9
10
11
12
Jul-
04
Jul-
05
Jul-
06
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
Yie
ld G
ap (
%)
Earnin
gs Y
ield
& I
ndia
10
Yr G
-S
ec (
%)
Nifty earnings yield and bond yield (%)
Earnings yields (%) India 10-y G-Sec yields (%)Yield Gap (%)
Case for Long Term Investing &
Managing Volatility
23
Staggered investments over long term in the form of SIP in
Equity Schemes may help in wealth creation
Short term volatility to prevail given the current economic
scenario. Asset Allocation Schemes which may benefit
from volatility recommended
Implementation of reforms measures and the subsequent
results to take ~3-5 years. A minimum investment horizon
of 3-5 years is recommended
Reforms Continuity & Initiatives may ensure long term
growth story remains intact Reforms
Implementation
Asset Allocation
SIP for Wealth Creation
Outlook – Asset Allocation, Value &
Special Situations Theme
24
Volatility may
prevail due to
global and
domestic factors
Equity accumulation, in
mid/small/multicaps,
should be in a staggered
manner via SIP/STP
Neutral stance on
equities as valuations
look reasonable
Recommend lump
sum investment in
Asset Allocation
Schemes to benefit
out of volatility
Value and special
situation themes
expected to play
out during 2019
Schemes to manage Volatility:
Our Asset Allocation Bouquet
25
These schemes aim to benefit from volatility and manage equity exposure based on valuations
ICICI Prudential
Regular Savings Fund*
Conservative
Hybrid Fund
Equity
Savings
Fund
Dynamic Asset
Allocation or
Balanced
Advantage
Fund
Multi
Asset
Allocation
Aggressive
Hybrid
ICICI Prudential
Equity Savings Fund
ICICI Prudential Balanced
Advantage Fund
ICICI Prudential
Multi-Asset Fund
ICICI Prudential
Equity & Debt Fund
Net Equity–
10-25%
Net Equity–
15-50%
Net equity –
30-80%
Net Equity –
10-80%
Net Equity–
65-80%
The asset allocation and investment strategy will be as per the Scheme Information Document, *These schemes will attract debt taxation. ^Investors may please note that they will be bearing the
recurring expenses of this Scheme in addition to the expenses of the underlying Schemes in which this Scheme makes investment.
ICICI Prudential
Asset Allocator Fund*^
Net Equity Level*:
0-100%
Fund of
Funds
Debt Taxation Debt Taxation Equity Taxation
ICICI Prudential Asset Allocator Fund#
*On change in allocation by the scheme. For more details on tax please consult with your tax advisor. Investors may note that they will be bearing the recurring expenses of this scheme in addition to the expenses of the underlying
Schemes in which the scheme makes investment. $ The portfolio is as on July 31, 2019. The asset allocation and investment strategy will be as per Scheme Information Document.
(# An open ended fund of funds scheme investing in equity oriented schemes, debt oriented schemes and gold ETFs/ schemes
To hedge against inflation or in adverse market situations, the Scheme may invest up to 50% in gold mutual fund schemes. Note: Subscriptions under the dividend plan of the scheme have been discontinued w.e.f. March 06, 2019
26
“Allocate between equity and debt at right time without tax impact*”
The Right Allocation is not only dependent on Equity Valuation, also considers the opportunities that are available in Debt Market.
Allocation between asset classes
• The Scheme will be actively managed by Fund Managers having expertise of equity and debt markets.
• The Scheme allocates predominantly between equity and debt mutual fund schemes based on in-house valuation model.
Equity Allocation$
ICICI Prudential Large &
Midcap Fund
Debt Allocation$
ICICI Prudential All Seasons Bond Fund
+
ICICI Prudential Floating
Interest Fund
ICICI Prudential Asset Allocator Fund Strategy
27
An In house Market Valuation Model allows “Buying Low and Selling High” while keeping human emotions aside
EQUITY / DEBT
VALUATION
GOES UP
REDUCE
EQUITY / DEBT
EXPOSURE
EQUITY / DEBT
VALUATION
COMES DOWN
INCREASE
EQUITY / DEBT
EXPOSURE
The asset allocation and investment strategy will be as per Scheme Information Document.
ICICI Prudential Asset Allocator Fund –
Exposure during Various Market Cycles
28
The model exhibits the principles of “Buy Low, Sell High” by increasing equity exposures when markets have fallen and vice-versa
In house equity valuation index model has been used for calculation purpose which is being used for managing ICICI Prudential Asset Allocator fund & from 4th
feb 2019 actual fund NAV has been taken Past performance may or may
not sustain in future. Source: MFIE. The above allocation is for understanding the in-house allocation model. The asset allocation and investment strategy will be as per Scheme Information Document. The returns are absolute returns.
Period considered: March 31, 2010 to July 31, 2019. The performance of the model does not represent the performance of the scheme. The performance of the scheme is benchmarked to the Total Return variant of the Index.
20509
15455
18620
29183
23002
38645
10%
81%
70%
26%
63%
12% 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
10000
15000
20000
25000
30000
35000
40000
Mar-10
Jul-
11
Nov-12
Mar-14
Jul-
15
Nov-16
Mar-18
Jul-
19
Sensex (LHS) Equity Level (%) (RHS)
Schemes to benefit from Value & Special
Situations Theme
29
Fund of
Funds
*An open ended equity scheme following special situations theme. ^An open ended equity scheme following a value investment strategy. The asset allocation and investment strategy of the schemes will be as
per the Scheme Information Document
01
02
Value Fund with Equity Levels –
65 - 100%
ICICI Prudential Value Discovery Fund^
Special Situations Fund with Equity & Equity related
instruments of special situations theme of around
80 - 100%.
ICICI Prudential India Opportunities Fund*
These schemes aim to create wealth over long term by investing in opportunities at
reasonable valuations
ICICI Prudential India Opportunities Fund
30
The investment strategy will be as per Scheme Information Document
(1) Special Situation due to temporary Crisis in
a. Company b. Sectors c. Economy
(2) Government
Action/Regulatory Changes
(3) Global Events/Uncertainties
Situations that can be turned into opportunities
31
These schemes aim to benefit from the long term growth story
* An open ended equity scheme predominantly investing in small cap stocks. ^ An open ended equity scheme predominantly investing in mid cap stocks. # An open ended equity scheme investing across
large cap, mid cap, small cap stocks. The asset allocation and investment strategy of the schemes will be as per the Scheme Information Document
GROWTH
ICICI Prudential
Midcap Fund^
A Midcap fund with
equity levels: 65-100%
ICICI Prudential
Multicap Fund#
A Multicap fund with
equity levels: 65-100%
ICICI Prudential
Smallcap Fund*
A Smallcap fund with
equity levels: 65-100%
Schemes to benefit from long term growth story
ICICI Prudential Smallcap Fund
32 The asset allocation and investment strategy of the scheme will be as per the Scheme Information Document
Robust Investment
Process
Portfolio Construction
and Investment Strategy
Large & Midcap Exposure:
10 – 30% for tactical
allocation & liquidity purpose
Solid Research and
Screening Process
No. of Stocks: 40 – 65
Smallcap Exposure: 70 – 90%
of portfolio
Young and agile
(AUM as on July 31,
2019 is Rs. 383.98 Crs)
ICICI Prudential Multicap Fund
33 The investment strategy of the scheme will be as per the Scheme Information Document
Flexibility to invest
across market
capitalization
Well diversified
across various
sectors and stocks
Mix of Value and
Growth Strategy
Top down and
bottom up
approach
Less sector skewness &
Midcap/Smallcap allocation
based directionally as per our
In-House Market Cap Model
Our SIP Recommendations
34
ICICI Prudential
India Opportunities
Fund
(An open ended equity
scheme following
special situations theme)
ICICI Prudential
Large & Midcap
Fund
(An open ended equity
scheme investing in both
largecap and midcap
stocks)
ICICI Prudential
Smallcap Fund
(An open ended equity
scheme predominantly
investing in smallcap
stocks)
ICICI
Prudential
Midcap Fund
(An open ended equity
scheme predominantly
investing in mid cap
stocks)
ICICI Prudential
Multicap Fund
(An open ended equity
scheme investing
across large cap, mid
cap and small cap
stocks)
Equity Valuation Index
35
Equity valuations show that
the market valuations are in a
neutral zone where investors
are recommended to invest in
Asset Allocation / Balanced
Advantage Funds.
Equity Valuation index is calculated by assigning equal weights to Price-to-Earnings (PE), Price-to-Book (PB), G-Sec*PE and Market Cap to GDP ratio. G-Sec – Government Securities. GDP – Gross Domestic Product; Asset Allocation – Schemes that
invest both in equity and fixed income
105.39
50
70
90
110
130
150
170
Jul-
06
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Jul-
11
Jul-
12
Jul-
13
Jul-
14
Jul-
15
Jul-
16
Jul-
17
Jul-
18
Jul-
19
Invest in Equities
Aggressively invest in Equities
Neutral
Incremental Money to Debt
Book Partial Profits
OUR FIXED INCOME OUTLOOK:
PLAY ON LIQUIDITY & CARRY
36
Current situation in the Fixed Income Space
37
Source: CRISIL Research; FY refers to fiscal year ends Apr - Mar; *Inflation (CPI) is for the month of June-19, Currency, Crude Oil prices as on July 31 2019 , Forex Reserves as on 12-Jul-2019, US 10Yr G-
sec(%) as on July 31, 2019; CAD is for FY 19; FD Estimates from Budget Documents for FY20; GDP is for Q4FY19.
Fiscal Year Ends FY13 FY14 FY15 FY16 FY17 FY18 FY19
Inflation (CPI%) 10.2 9.5 5.9 4.9 3.8 3.6 3.2*
Current Account Deficit (%
GDP) -4.8 -1.7 -1.3 -1.1 -0.6 -1.9 -2.1
Fiscal Deficit (% GDP) 4.9 4.5 4.1 3.9 3.5 3.5 3.4*
Crude Oil (USD/barrel) 109 107 53 39 60 57.8 65.2*
GDP Growth (%) 5.6 6.6 7.2 7.9 7.9 7.3 5.8
Forex Reserves (USD bn) 292 304 342 356 370 424 429*
Currency (USD/INR) 54.3 59.9 62.5 66.3 64.9 64.5 68.8*
US 10YR G-sec (%) 1.85 2.72 1.92 1.77 2.39 2.78 2.1*
Current situation in the Fixed Income Space
38
RBI delivered 75 bps rate cut in CY’19
Despite rate cuts & surplus liquidity, corporate bond spreads remain high
Rate Transmission channel are broken (Credit concern + NBFC + Crowding out)
MCLR continue to remain elevated, further hampering the rate transmission
High small savings rate, major deterrent for banks to reduce deposit rate
NBFC – Non Banking Financial Corporation, MCLR - Marginal Cost of Funds Lending Rate, Data Source : RBI
Transmission channels are broken –
Corporate bond spread
39
Corporate Bond spreads remain elevated due to crowding out effect and due to credit concerns.
Source : CRISIL Research, Data as on July 31, 2019
6
7
8
9
10
11
12
Jul-
12
Jan-13
Jul-
13
Jan-14
Jul-
14
Jan-15
Jul-
15
Jan-16
Jul-
16
Jan-17
Jul-
17
Jan-18
Jul-
18
Jan-19
Jul-
19
(%
)
Corporate Bond Rates
AAA_3 Year AA_3 Year Repo Rate
Our Outlook
40
GLOBAL
Global environment remains supportive of lower rates with oil prices ~$65 as on July end
Uncertainty remains on account of trade tensions, pushing growth expectations lower
Expect major central banks to be dovish
DOMESTIC
On domestic front, economy going through consumption and investment slowdown,
Expect RBI to cut rates by ~50 bps further in 2019 with surplus liquidity
Expect steepening of yield curve in the coming quarters
In light of this, we are positive on short/medium corporate bond & accrual funds, which seem
attractive on the risk reward benefit.
Triggers to our Outlook
41
Positive Negative
Global Rates dovish Fiscal Deficit
Crude Oil ~$65 as on July end Trade & Current Account Deficit
Domestic Growth slowdown Overvalued INR
Inflation below RBI target
RBI rate cuts with surplus liquidity
Fiscal Deficit
42 Source : RBI, JP Morgan Research, UDAY – Ujjwal DISCOM Assurance Yojana, RE – Revised Estimates
Public Sector Borrowing
43 FY 19: From January 19 till July 31, 2019
Fiscal Target looks Challenging
44
11.1%
13.4% 13.4% 14.3%
6.9%
25.2%
20.5% 20.5%
21.9%
11.8%
0%
5%
10%
15%
20%
25%
30%
Tax Revenue Total Receipts Total Expenditure Revenue Expenditure Capital Expenditure
FY 20/ FY19 RE FY 20/ FY19 Actuals
Source: RBI, RE – Revised Estimates. Actuals as on July 31, 2019
Current Account Balance
45
Source: CRISIL Research; Data for CAD is as on 31st Mar, 2019. GDP – Gross Domestic Product. CAD – Current Account Deficiti
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9(5.50)
(4.50)
(3.50)
(2.50)
(1.50)
(0.50)
0.50
1.50
2.50
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
10
Year G
-S
ec
Current A
cco
unt D
efic
it as a
% t
o G
DP
Current Account Deficit Vs 10 Yr G-Sec
CAD 10 Yr G-Sec (RHS)
Trade Balance
46
Source: CRISIL Research; Data for Trade Balance is as on 30th
June 2019
5
6
7
8
9
10-22
-18
-14
-10
-6
-2
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
India
10 Y
ear S
-S
ec
Trade B
ala
nce (
US
D b
n)
Trade Balance (In USD Billions)
India Trade balance (USD bn) India 10 Year G-Sec Yield (%), RHS
Inflation
47
RBI‟s decision to hold rates in Dec policy as inflation remained below its target of 4% helped Government bonds,
despite concerns about liquidity in the system
-2%
0%
2%
4%
6%
8%
-2%
0%
2%
4%
6%
8%
No
v-17
Dec-1
7
Jan
-1
8
Feb-18
Mar-18
Apr-18
May-1
8
Jun
-1
8
Jul-
18
Au
g-18
Sep-1
8
Oct-18
No
v-18
Dec-1
8
Jan
-1
9
Feb-19
Mar-19
Apr-19
May-1
9
Jun
-1
9
Core Inflation (%) Food inflation (%) Fuel and light (%) Headline Inflation (%)
Source: CRISIL Research; Inflation figure as of June 2019
Events to watch out for
48
Short term triggers:
Report on RBI reserves
RBI report on liquidity framework
Uncertainty on foreign currency borrowing by the Government of India
US Fed Stance on monetary policy
Segment of yield curve which stands to benefit
49
• As RBI repo rate moves down further, yield curve tends to steepen, making short
end of yield curve attractive with better margin of safety
• Corporate bond spreads are at elevated levels, we expect compression of
corporate bond spreads to happen
• Liquidity conditions improving is positive more for short end space as compared to
the longer end space.
• So, the play is on liquidity carry spreads, which makes us positive on the short end
space
Spread Compression in Corporate Bonds
50
5.5
6
6.5
7
7.5
8
8.5
9
1 Year 3 Year 5 Year 10 Year
AAA AA Gsec Repo
S
P
R
E
A
D
1-3 Year segment most attractive
in the corporate bond space Avg.
225 bps
Avg.
166 bps
Avg. 49
bps
Corporate Bond spread over Repo at an elevated levels. Going forward, we expect spread to compress
Source: CRISIL Research; Data as of July 31, 2019
High Quality Portfolio
Data as of July 31, 2019; Past performance may or may not be sustained in future. *AAA, G-Sec and Cash
51
Scheme Name Yield to Maturity
(YTM)
Modified
Duration (Yrs.)
Exposure to
AAA*
securities
ICICI Prudential Money Market Fund 6.39% 0.37 100.0%
ICICI Prudential Savings Fund 7.28% 0.76 85.5%
ICICI Prudential Short Term Fund 7.95% 1.89 81.2%
ICICI Prudential Corporate Bond Fund 7.37% 1.87 100.0%
ICICI Prudential Banking & PSU Debt Fund 7.47% 2.50 84.3%
Play on Carry –
Strong case for investment in Credit Risk Funds
52
Valuations are attractive
Industry Flows are slowing
down
Sentiments are Negative
ICICI Prudential Credit Risk Fund –
Spread Over Repo (Since Inception)
53 Data as on July 31, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.
Current Spread :
4.91
Average Spread :
2.9
Current Spread :
4.7
0
1
2
3
4
5
6
Jan
-1
1
May-1
1
Sep-1
1
Dec-1
1
Apr-12
Au
g-12
Nov-12
Mar-13
Jun
-1
3
Oct-13
Feb-14
May-1
4
Sep-1
4
Dec-1
4
Apr-15
Au
g-15
Nov-15
Mar-16
Jul-
16
Oct-16
Feb-17
May-1
7
Sep-1
7
Jan
-1
8
Apr-18
Au
g-18
Nov-18
Mar-19
Jul-
19
Yie
ld S
preads (%
)
ICICI Prudential Medium Term Bond Fund–
Spread Over Repo (Last 10 Year Trend)
54
Data as on July 31, 2019. YTM values taken for the last 10 years. Past Performance may or may not be sustained in future.
Average : 2.13
Current Spread
: 4.16
-3
-2
-1
0
1
2
3
4
5
Jul-
09
Nov-09
Mar-10
Jul-
10
Nov-10
Mar-11
Jul-
11
Nov-11
Mar-12
Jul-
12
Nov-12
Mar-13
Jul-
13
Nov-13
Mar-14
Jul-
14
Nov-14
Mar-15
Jul-
15
Nov-15
Mar-16
Jul-
16
Nov-16
Mar-17
Jul-
17
Nov-17
Mar-18
Jul-
18
Nov-18
Mar-19
Jul-
19
Yie
ld S
preads (%
)
Invest when Flows are Muted
55
Source: MFIE. The funds considered are only Credit Risk Funds as per SEBI classification. Data as of June 30, 2019
90,924
76,195
73,127
0
20,000
40,000
60,000
80,000
1,00,000M
ar-18
Apr-18
May-18
Jun-18
Ju
l-1
8
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Credit Risk Funds Category AUM (In Crs) - Industry Level
Why ICICI Prudential Accrual Funds
56
Investment
Philosophy
Strong Credit
Selection
Process
Robust
Investment
Process
Better Risk
Adjusted
Returns
Investment Philosophy
57
01
02
03
Safety
Liquidity
Returns
The investment team
seeks to achieve Safety,
Liquidity and Returns
(SLR) in order of priority
for managing variety of
our fixed income
schemes.
Robust Investment Process
58
Involves assessment of :
• Past track record of the
company
• Cash flows
• Asset Quality
• Assessment of Management
risk & Business risk
• Credit Ratings by external
credit rating agencies
• Based on investment
mandate of the scheme
• Yield and interest rate risk
management based on
interest rate view and
technical factors
• Liquidity risk management
to avoid asset-liability
mismatch
• Regular review of macro-
economic variables, liquidity
and credit risk
• Regular monitoring of
financial and business
profile of issuers
• Regular meetings with
company managements
• Performance and portfolio
analysis
CREDIT RESEARCH PORTFOLIO CONSTRUCTION PORTFOLIO MONITORING
Strong Credit Selection Process
59
CREDIT
SELECTION
Independent
evaluation by Risk
Team
Target list filters
• Independent research team
• Self-origination model
• External credit rating
Decision making is
not concentrated to
one person
Focus not just on
credit and liquidity
risk but also on
diversification
Outlook – Play on Liquidity & Carry
60
We continue to remain sanguine towards the short end
of the yield curve and on spread assets
We may tactically alter duration based on the spread
opportunity available in different market segment
We believe there would be rate cuts by the RBI in the
upcoming policy meets
Accrual schemes have moved into „buy‟ territory with
attractive valuations, reduced flows, and negative
sentiments (NBFC liquidity crunch).
Risk-reward benefit has turned favourable; good time to
earn carry with high credit spreads available in the
corporate bond space
NBFC – Non-Banking Financial Companies
Debt Valuation Index
Debt Valuation Index considers WPI, CPI, Sensex YOY returns, Gold YOY returns and Real estate YOY returns over G-Sec yield, Current Account Balance and Crude Oil Movement for calculation. WPI – Wholesale Price Index;
CPI – Consumer Price Index. None of the aforesaid recommendations are based on any assumptions. These are purely for reference and the investors are requested to consult their financial advisors before investing.
• We recommend investors to
invest in Short Duration
schemes (1-3 yrs) or accrual
schemes such as ICICI
Prudential Credit Risk Fund
and ICICI Prudential Medium
Term Bond Fund.
• For those investors who aim
to benefit from volatility we
recommend investment in
ICICI Prudential All Seasons
Bond Fund.
61
Ultra Low Duration
High Duration
2.50
Ultra Low Duration
Low Duration
Moderate Duration
High Duration
Aggressively in High Duration
2.86
1
2
3
4
5
6
7
8
9
10
Jul-
16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-
17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-
18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-
19
Ultra Low Duration
Low Duration
Moderate Duration
High Duration
Aggressively in
High Duration
Fixed Income Recommendations
62
ICICI Prudential Floating Interest Fund
Cash Management Solution
(which benefits from better risk adjusted returns)
ICICI Prudential Ultra Short Term Fund
ICICI Prudential Medium Term Bond Fund
Accrual Schemes
(which benefits from capturing yields at elevated levels)
ICICI Prudential Credit Risk Fund
ICICI Prudential All Seasons Bond Fund Dynamic Duration Schemes
( which benefits from volatility by actively managing duration)
ICICI Prudential Short Term Fund Low/Short Duration Schemes
(which benefits from mitigating interest rate volatility)
Our Equity Schemes
Scheme Name Type of Scheme
ICICI Prudential Bluechip Fund An open ended equity scheme predominantly investing in large cap stocks
ICICI Prudential Large & Mid Cap Fund An open ended equity scheme investing in both large cap and mid cap stocks.
ICICI Prudential Midcap Fund An open ended equity scheme predominantly investing in mid cap stocks.
ICICI Prudential Smallcap Fund An open ended equity scheme predominantly investing in small cap stocks.
ICICI Prudential Value Discovery Fund An open ended equity scheme following a value investment strategy.
ICICI Prudential Multicap Fund An open ended equity scheme investing across large cap, mid cap, small cap
stocks.
ICICI Prudential India Opportunities Fund An Open Ended Equity Scheme following Special Situation theme
ICICI Prudential US Bluechip Equity Fund An open ended equity scheme investing predominantly in securities of large cap
companies listed in the United States of America.
63
Our Hybrid Schemes / Fund of Funds Scheme
Scheme Name Type of Scheme
ICICI Prudential Balanced Advantage Fund An open ended dynamic asset allocation fund
ICICI Prudential Regular Savings Fund An open ended hybrid scheme investing predominantly in debt instruments
ICICI Prudential Equity Savings Fund An open ended scheme investing in equity, arbitrage and
debt.
ICICI Prudential Equity & Debt Fund An open ended hybrid scheme investing predominantly in equity and equity
related instruments
ICICI Prudential Multi-Asset Fund An open ended scheme investing in Equity, Debt, Gold/Gold ETF/units of REITs &
InvITs and other asset classes as may be permitted from time to time.
64
Scheme Name Type of Scheme
ICICI Prudential Asset Allocator Fund* An open ended fund of funds scheme investing in equity oriented schemes, debt
oriented schemes and gold ETFs/schemes.
*Investors may please note that they will be bearing the recurring expenses of this Scheme in addition to the expenses of the underlying Schemes in which this Scheme makes investment.
Our Debt Schemes
65
Scheme Name Type of Scheme
ICICI Prudential 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 months and 6 months.
ICICI Prudential Short Term Fund An open ended short term debt scheme investing in instruments such that the Macaulay
duration of the portfolio is between 1 Year and 3 Years.
ICICI Prudential Medium Term Bond Fund
An open ended medium term debt scheme investing in instruments such that the Macaulay
duration of the portfolio is between 3 Years and 4 Years. The Macaulay duration of the portfolio
is 1 Year to 4 years under anticipated adverse situation.
ICICI Prudential Credit Risk Fund An open ended debt scheme predominantly investing in AA and below rated corporate bonds.
ICICI Prudential Floating Interest Fund An open ended debt scheme predominantly investing in floating rate instruments (including
fixed rate instruments converted to floating rate exposures using swaps/derivatives).
ICICI Prudential All Seasons Bond Fund An open ended dynamic debt scheme investing across duration.
ICICI Prudential Savings Fund 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
ICICI Prudential Banking & PSU Debt Fund An open ended debt scheme predominantly investing in Debt instruments of banks, Public
Sector Undertakings, Public Financial Institutions and Municipal Bonds
ICICI Prudential Corporate Bond Fund An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds.
ICICI Prudential Money Market Fund An open ended debt scheme investing in money market instruments
Macaulay Duration - The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.
Riskometers
ICICI Prudential Multi-Asset Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended scheme investing across asset classes.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Equity & Debt Fund is suitable for investors who are seeking*:
Long term wealth creation solution
A balanced fund aiming for long term capital appreciation and current income by investing in equity as well as fixed income securities.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Balanced Advantage Fund is suitable for investors who are seeking*:
Long term wealth creation solution
An equity fund that aims for growth by investing in equity and derivatives.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
66
Riskometers
ICICI Prudential Bluechip Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended equity scheme predominantly investing in large cap stocks.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Value Discovery Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended equity scheme following a value investment strategy
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Large & Mid Cap Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended equity scheme investing in both largecap and mid cap stocks
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
67
Riskometers
ICICI Prudential Credit Risk Fund is suitable for investors who are seeking*:
Medium term savings
A debt scheme that aims to generate income through investing predominantly in AA and below rated corporate bonds while
maintaining the optimum balance of yield, safety and liquidity
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Medium Term Bond Fund is suitable for investors who are seeking*:
Medium term savings
A debt scheme that invests in debt and money market instruments with a view to maximize income while maintaining optimum balance
of yield, safety and liquidity
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Regular Savings Fund is suitable for investors who are seeking*:
Medium to long term regular income solution
A hybrid fund that aims to generate regular income through investments primarily in debt and money market instruments and long term
capital appreciation by investing a portion in equity.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
68
Riskometers
ICICI Prudential Short Term Fund is suitable for investors who are seeking*:
Short term income generation and capital appreciation solution
A debt fund that aims to generate income by investing in a range of debt and money market instruments of various maturities.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential All Seasons Bond Fund is suitable for investors who are seeking*:
All duration savings
A debt scheme that invests in debt and money market instruments with a view to maximize income while maintaining optimum balance
of yield, safety and liquidity
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Smallcap Fund is suitable for investors who are seeking*:
Long Term wealth creation
An open ended equity scheme that seeks to generate capital appreciation by predominantly investing in equity and equity related
securities of small cap companies.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
69
Riskometers
ICICI Prudential Floating Interest Fund is suitable for investors who are seeking*:
Short term savings
An open ended debt scheme predominantly investing in floating rate instruments
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Ultra Short Term Fund is suitable for investors who are seeking*:
Short term regular income
An open ended ultra-short term debt scheme investing in a range of debt and money market instruments
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Midcap Fund is suitable for investors who are seeking*:
Long Term wealth creation
An open-ended equity scheme that aims for capital appreciation by investing in diversified mid cap companies.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
70
Riskometers
ICICI Prudential India Opportunities Fund (The scheme is suitable for investors who are seeking*)
Long term wealth creation
An equity scheme that invests in stocks based on special situations theme.
*Investors should consult their financial advisors if in doubt about whether the product is suitable for them.
71
ICICI Prudential Equity Savings Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended scheme that seeks to generate regular income through investments in fixed income securities, arbitrage and other
derivative strategies and aim for long term capital appreciation by investing in equity and equity related instruments.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
ICICI Prudential Multicap Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended equity scheme investing across largecap, mid cap and small cap stocks.
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
Riskometers
ICICI Prudential US Bluechip Equity Fund is suitable for investors who are seeking*:
Long term wealth creation
An open ended equity scheme primarily investing in equity and equity related securities of companies listed on recognized stock
exchanges in the United States of America
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them
72
ICICI Prudential Savings Fund is suitable for investors who are seeking*:
Short term savings
An open ended low duration debt scheme that aims to maximize income by investing in debt and money market instruments while
maintaining optimum balance of yield, safety and liquidity
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
ICICI Prudential Banking & PSU Debt Fund is suitable for investors who are seeking*:
Short term savings
An open ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions
and Municipal Bonds
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Riskometers
73
ICICI Prudential Corporate Bond Fund is suitable for investors who are seeking*:
Short term savings
An open ended debt scheme predominantly investing in highest rated corporate bonds
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
ICICI Prudential Money Market Fund is suitable for investors who are seeking*:
Short term savings
A money market scheme that seeks to provide reasonable returns, commensurate with low risk while providing a high level of liquidity
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
•Long Term wealth creation
•An open ended fund of funds scheme investing in equity oriented schemes, debt oriented schemes and gold ETF/schemes.
*Investors should consult their financial advisors if in doubt about whether the product is suitable for them.
ICICI Prudential Asset Allocator Fund (An open ended fund of funds scheme investing in equity oriented schemes, debt
oriented schemes and gold ETFs/ schemes) is suitable for investors who are seeking*:
Disclaimer For Mutual Funds
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
All figures and other data given in this document are dated. The same may or may not be relevant at a future date. The AMC takes no responsibility of updating any data/information in this material
from time to time. The information shall not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Prudential Asset Management Company Limited. Prospective investors are advised to consult their own legal, tax and financial advisors to determine possible tax,
legal and other financial implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund. Past Performance may or may not be sustained in future.
Disclaimer: In the preparation of the material contained in this document, ICICI Prudential Asset Management Company Ltd. (the AMC) has used information that is publicly available, including
Budget speech and information developed in-house. The stock(s)/sector(s) mentioned in this slide do not constitute any recommendation and ICICI Prudential Mutual Fund may or may not have
any future position in this stock(s). Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its affiliates and which may have
been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC however does not warrant the
accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as
“will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions, that are “forward looking statements”. Actual results may differ materially from those suggested by
the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions
in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in
interest rates, foreign exchange rates, equity prices or other rates or prices etc. ICICI Prudential Asset Management Company Limited (including its affiliates), the Mutual Fund, The Trust and any
of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as
also any loss of profit in any way arising from the use of this material in any manner. Further, the information contained herein should not be construed as forecast or promise or investment
advice. The recipient alone shall be fully responsible/are liable for any decision taken on this material.
74