This three sentence summary provides the key details about the SBI Corporate Bond Fund:
The SBI Corporate Bond Fund seeks to generate returns through investments in high quality corporate debt securities ranging from 80-100% of its portfolio, while maintaining up to 20% in low-to-medium risk money market instruments. The fund aims to offer reasonable returns to investors with a medium-term investment horizon and low risk appetite by actively managing a portfolio of corporate bonds and maintaining average credit quality of AA or higher. The fund manager aims to generate alpha through prudent credit selection and maintaining an average portfolio maturity of under 3 years.
2. This product is suitable for investors who are seeking:
Investment in debt and money-
market securities
Regular income for medium term
Low risk
Disclaimer: Investors should consult their financial advisors if in doubt whether this product
is suitable for them.
SBI Corporate Bond Fund
3. Product Snapshot
* Corporate Debt securities will include Debenture and Bonds issued by Corporate (private institutions across sectors including NBFC’s, banks and other financial
institutions), PSU's, Securitized Debt#, and International Bonds. # Investment in securitized debt will be to the extent of 40% of the net assets of the scheme
Exposure to derivatives instruments in the scheme will be to the extent of 50% of the net assets of the scheme. The cumulative gross exposure through Debt &
Money market instruments and derivative positions will not exceed 100% of the net assets of the scheme. However, trading in derivatives by the scheme shall be
restricted to hedging and portfolio balancing purposes as permitted by the regulations.
• To actively manage a portfolio of good quality corporate debt
as well as Money Market Instruments so as to provide
reasonable returns to the Unit holders
Investment
Objective
• Investors having a reasonable risk appetite and an
investment horizon of minimum 2 years.
Investment
Suitability
• Corporate Debt Securities* (incl. securitized debt#):
• Indicative Allocation - Minimum 80% & Maximum 100%
• Risk Profile – Medium
• Money Market Instruments:
• Indicative Allocation - Maximum 20%
• Risk Profile – Low to Medium
Asset
Allocation
4. Current Portfolio Structure
Portfolio AA+ & AboveBelow AA+₌ ₊
The fund manager will not engage in active duration management but will try to generate alpha by capturing
spread over AAA securities.
This portion of the
funds is primarily
invested with
maturities ranging
from 1 to 5 years
The segment
currently looks
attractive on account
of fat spreads,
comfortable interest
rate position and
liquidity outlook.
This portion of the
portfolio seeks to
generate higher
returns by way of
credit selection.
The allocation to the
long bonds to
maintain duration
within a constant
range
Attractive absolute
yield levels provide
an opportunity from
a long term
perspective.
This portion of the
portfolio seeks to
provide stable
returns.
Current Exposure :
60.58%*
Current Exposure :
32.31%*
*As on April 30, 2016
8.15
4.75
74.34
5.64
7.11
CD CP NCD ZCB NCA/CBLO/Reverse Repo
5. Current Portfolio Quality
Data as on: April 30, 2016
InterestRateSensitivity
Credit Quality
High Medium Low
High
Medium
Low
Issuer % Of NAV
L&T METRO RAIL (HYDERABAD) LIMITED 7.49
ADVINUS THERAPEUTICS LIMITED 7.26
ADANI PROPERTIES PRIVATE LTD. 6.08
STERLING & WILSON PRIVATE LIMITED 5.64
SHARDA SOLVENT LTD 5.46
JANALAKSHMI FINANCIAL SERVICES PVT
LTD 5.24
ASHOKA BUILDCON LIMITED 5.02
AU FINANCIERS (INDIA) LIMITED 4.88
CHOLAMANDALAM INVESTMENT &
FINANCE COMPANY LTD 4.73
ORIENTAL HOTELS LTD. 4.42
Total 56.22
Top 10 Holdings
Duration Bucket %
7%
10%
12% 12%
0%
4%
8%
12%
16%
1 week 30 days 45 days 90 days
6. RBI has cut Repo rate by 25bps in April and cumulatively delivered
150bps of rate cut in this easing cycle thus far.
The G-sec 10 year yield moved within a narrow range of 7.40%-
7.50% during the month of April displaying the market sentiments
which have been bearish even after the 25 bps cut by RBI at the
beginning of the month and March CPI inflation being more benign
than expected.
Supply of DISCOM bonds and likelihood of increased state bonds
supply continues to prevent any meaningful rally. The near term
direction of yields would largely be determined by the OMO schedule
as also the domestic banking system’s credit.
In the money market, liquidity conditions eased at the margin on
account of reversal of year end tightness. Government’s cash
balances came back into the system and RBI conducted Rs. 300bn of
OMO to diffuse liquidity into the system. This was partially offset by
higher currency withdrawals and seasonal increase in CRR
requirement. Easing of liquidity has helped to considerably ease the
short-term rates.
Given the current demand-supply dynamics of bonds and our view on
evolution of inflation trajectory, we have reduced duration in bond
funds by switching to front-end of the curve (5-7 year segment) that
looks attractive from a valuation perspective.
Market Outlook
Source: RBI, Bloomberg, SBIFM Research
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
10 year GSec yield (mth end, %) Repo Rate (mth end, %)
Average spread between G-sec
and Repo in last 5 years: 75bps
7. Why More AA Rated Bonds in the Portfolio
Source: Bloomberg as on April 30, 2016
Spreads between AA & AAA 3 year corporate bonds are above the 3 year period average
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Spread 3 Yr Average
8. Why More AA Rated Bonds in the Portfolio
Source: Bloomberg as on April 30, 2016
AA 3 year spreads continue to outshine the G-Sec 3 year yields by a healthy margin
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2-May-14
2-Jun-14
2-Jul-14
2-Aug-14
2-Sep-14
2-Oct-14
2-Nov-14
2-Dec-14
2-Jan-15
2-Feb-15
2-Mar-15
2-Apr-15
2-May-15
2-Jun-15
2-Jul-15
2-Aug-15
2-Sep-15
2-Oct-15
2-Nov-15
2-Dec-15
2-Jan-16
2-Feb-16
2-Mar-16
2-Apr-16
2-May-16
Spread Average
9. Investment Strategy
The fund aims to provide investors with yield spreads on corporate debt securities by
cautiously managing the excess risk on its corporate investments. The fund will follow an
active credit quality management strategy.
The scheme being open ended, some portion of the portfolio will be invested in money
market instruments so as to meet the normal repurchase requirements. The remaining
investments will be made in corporate debt securities which are either expected to be
reasonably liquid or of varying maturities. However, the NAV of the Scheme may be impacted
if the securities invested in are rendered illiquid after investment.
In line with the scheme objective we have deployed funds in 2 – 3 year corporate bonds with
the primary focus on accrual. The portfolio average maturity is 2.96 years and the current
weighted average portfolio yield is 9.26%.
Tactical exposure towards long AAA rated corporate bonds has been initiated with a positive
bias on interest rates.
11. Credit Evaluation Philosophy
Independent
Independent in-house research
Fundamental Approach
Judgemental Approach combined with analysis of financial ratios
Intensive Due Diligence
Channel Checks, Interaction with Company Management & Rating
Agencies, Competitor Analysis
Monitoring
Close monitoring of credits under coverage through periodic updates
and analysis.
Bottom Up Approach
Credit Selection, Security Allocation, Spread Dynamics, Sector Allocation
12. Industry Analysis
Structure, Demand &
Supply, Industry Cycles,
Entry Barriers, and
Outlook
Company’s Business
Fundamentals
Competition, Business
Model, Inherent Strengths
& Weaknesses
Financial Analysis
Financial Statements, Ratios,
Capital Structure, Leverage,
Working Capital Management,
Bank Credit Lines , Liabilities,
Asset Quality & Maturity and Risk
ManagementManagement
Promoter Background & Track
Record, Performance of Group
Companies, Internal Controls,
and Succession Plans
Risk Management
Internal reviews and
performance matrices to
manage Exposure Limits ,
Risks such as Credit, Liquidity,
Interest Rate etc.
Macro
Fundamentals
Monetary & Fiscal Policies,
Regulations ,
Credit Evaluation Approach
13. Case Study: A Leading Hotel Company
Background: Jointly promoted by a renowned Indian corporate and a prominent Indian business
family.
Investment Thesis:
• The company has an experience of over 40 years and operates a portfolio of nine hotels in
multiple states in India.
• The company’s financial performance is expected to improve owing to increasing occupancy
as well as average room rates in key markets
Investment Rationale:
• Market outlook for key properties is stable to positive.
• Planned capital expenditure for the company is largely over with over 25% of inventory
added in previous three years and only maintenance expenditure planned in near term.
• Comfort from the common branding, operations, finance and treasury support extended by a
large hotel brand for the Company.
14. Case Study: A Leading Infra Company
Background:
• The company has a Build, Operate and Transfer (BOT) portfolio of 21 road projects
encompassing 5,000 lane km and spread across various states in India.
Investment Thesis:
• 15 out of its portfolio of 21 projects are fully operational.
• The company houses its road projects under two broad holding companies out of which one
was carved out with eight projects in its portfolio to enable a strategic stake sale to a fund
sponsored by a PSU Bank.
• The PSU Bank Sponsored Fund holds around 35% in the said company.
Investment Rationale:
• Key credit strengths are established track record in executing EPC contracts and BOT road
projects
• Moderate financial leverage and working capital requirements and equity investment of Rs.
700 crore by the PSU Bank Sponsored Fund brings the holding company into the league of big
BOT players being the exclusive platform for the Bank to bid for newer projects.
15. Synopsis
Attractiveness of AA & below securities in the improving credit situation.
Sentiments in the bond markets have improved since the formation of a
stable and pro reform government at the centre.
Declining interest from foreign investors have been compensated by
increasing interest from domestic institutions in the bond market. This
inflow of funds will have an impact on the bond prices and may compress
yields.
Declining inflation trajectory and the consistent rate cut by RBI. Its
better to capitalise on the high corporate bond yields now.
17. 17
Strong Indian Presence ; Extended International Reach
63% 37%
India’s premier and largest bank with over
200 years experience (Estd: 1806)
Asset base of USD 399 bn*
Pan-India network of ~22,635 branches and
~ 50,000 ATM’s as at end of June 2014
Servicing over 256 million customers
Only Indian bank in Fortune 500 list; ranked
among the top 100 banks in the world
Global leader in asset management
Backed by Credit Agricole and Société Générale
More than 2,000 institutional clients and distributors in
30 countries
Over 100 million retail clients via its partner networks
€ 866 bn AuM as at end of December 2014
Ranking N° 1 in Europe, Top 10 worldwide #
*Source: SBI Analyst Presentation as on end December 2014
# Source : Amundi website as on end December 2014
18. 18
Why SBIFM : Our Value Proposition
Group Advantage Process Expertise Risk Management
27 years of experience in asset
management with a strong
parentage
Leverage on strengths of both
stakeholders to achieve
qualitatively superior business
Extensive Distribution network
and Strong Relationships with
domestic and international
investors
Structured and disciplined
processes to ensure effective
execution of strategies
Rigorous investment templates
in place for each strategy
Flexibility to tailor solutions and
advisory assignments
Proven expertise in
managing strategies across
asset classes
In-depth understanding of
businesses and strong
linkages with company
managements and sell side
analysts
Strong in-house research
provides depth and breadth
of coverage resulting in
superior security selection
Strong six member
independent team
Risk management aligned
to international standards
Emphasis on coherence in
risk monitoring
19. Mr. Navneet Munot - CIO
Navneet Munot joined SBI Funds Management as Chief Investment Officer in December 2008. He brings
with him over 15 years of rich experience in Financial Markets. In his previous assignment, he was the
Executive Director & Head - multi - strategy boutique with Morgan Stanley Investment Management.
Prior to joining Morgan Stanley Investment Management, he worked as the CIO - Fixed Income and
Hybrid Funds at Birla Sun Life Asset Management Company Ltd. Navneet had been associated with the
financial services business of the group for over 13 years and worked in various areas such as fixed
income, equities and foreign exchange. Navneet is a postgraduate in Accountancy and Business
Statistics and a qualified Chartered Accountant. He is also a Charter holder of the CFA Institute USA and
CAIA Institute USA. He is also an FRM Charter holder of Global Association of Risk Professionals (GARP).
Mr Rajeev Radhakrishnan – Head, Fixed Income
Rajeev joined SBIFM as a fixed income portfolio manager in 2008. He currently heads the Fixed Income
desk at the AMC. Prior to joining SBIFM, Rajeev was Co-Fund Manager for Fixed Income with UTI Asset
Management for seven years. Rajeev is an Engineering graduate and holds a Masters degree in finance
from Mumbai University. He is also a charter holder of the CFA Institute, USA.
Mr. Dinesh Ahuja – Portfolio Manager
Dinesh Ahuja joined SBIFM in 2010. Prior to joining SBIFM, Dinesh was a portfolio manager at L&T Asset
Management and Reliance Group for four years. Dinesh started his career in 1998 as a fixed income
dealer on the sell side. Thereafter he worked in leading broking outfits for eight years before moving on
the buy side in 2006. Dinesh is a Commerce graduate and holds his Masters degree in Finance from
Mumbai University.
Investments Team
20. Mr. Dinesh Balachandran - Head of Research
Dinesh joined SBI FM in 2012 as a Senior Credit Analyst. He is now the Head of Research. Dinesh
started his career with Fidelity in Boston USA in 2001 where as an analyst he covered Structured
Finance, and local US fixed income market over 10 years. Dinesh holds a B.Tech degree from IIT,
Mumbai and M.S degree from Massachusetts Institute of Technology (MIT). He is also a Charter holder
of the CFA Institute, USA.
Mr Lokesh Mallya - Credit Analyst
Lokesh Mallya joined SBIFM in 2014. He brings along 9 years of experience in research in the Indian
fixed income market and fund management. Prior to joining SBIFM, Lokesh was working with Birla
Sunlife Asset Management, Investment Team as fund manager for short term and ultra-short term
funds. He is a Charter holder of the CFA Institute, USA and also a FRM charter holder of Global
Association of Risk Professionals (GARP).
Ms Mansi Sajeja - Credit Analyst
Mansi Sajeja joined SBIFM in 2009. Prior to joining SBIFM Mansi was a senior analyst at ICRA Ltd. for
over three years. Mansi holds bachelor’s degree in Financial & Investment analysis from Delhi University
and has completed post graduation diploma in Business Management from MDI, Gurgaon. She is also a
Charter holder of the CFA Institute, USA.
Credit Analysis Team
21. Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This presentation is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund
units/securities. These views alone are not sufficient and should not be used for the development or
implementation of an investment strategy. It should not be construed as investment advice to any party. All
opinions and estimates included here constitute our view as of this date and are subject to change without notice.
Neither SBI Funds Management Private Limited, nor any person connected with it, accepts any liability arising from
the use of this information. The recipient of this material should rely on their investigations and take their own
professional advice
SBI Funds Management Private Limited
(A joint venture between SBI and AMUNDI)
Registered Office:
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Call: 1800 425 5425
SMS: “SBIMF” to 56161
Email: customer.delight@sbimf.com
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