Interbank call money rates remained below the RBI’s repo rate of 5.75% during most parts of the month as systemic liquidity remained in surplus amid periodic repo auctions conducted by the central bank. The RBI also conducted frequent reverse repo auctions to drain away excess liquidity and give the opportunity to banks to park their idle funds. Read the full document to know more.

1. August 2019
Market Update
Interbank call money rates remained below the RBI’s repo rate of
5.75% during most parts of the month as systemic liquidity
remained in surplus amid periodic repo auctions conducted by the
central bank. The RBI also conducted frequent reverse repo
auctions to drain away excess liquidity and give opportunity to
banks to park their idle funds.
Currency in circulation rose 13.0% on-year in the week ended July
19, 2019, compared with 25.1% growth a year ago. The RBI, via its
liquidity window, absorbed Rs 1266.57 billion on a net daily
average basis in July 2019, compared with net liquidity absorption
of Rs 456.89 billion in June 2019.
Bank credit growth rose 12.0% on-year in the fortnight ended July
5, 2019. Non-food bank credit rose to Rs 96.27 trillion as on July 5,
2019.Time deposit growth was 10.3% on-year in the fortnight
ended July 5, 2019. Demand deposits witnessed 10.9% on-year
growth in the fortnight ended July 5, 2019.
Source: CRISIL, data as on July 31, 2019
Data Source – RBI, Mospi.Nic.in, CRISIL Fixed Income Database, LAF – Liquidity Adjustment Facility, MSF – Marginal Standing Facility, SLF – Standing Liquidity Facility, CP - Commercial Paper, CD – Certificate
of Deposit, CB – Corporate Bond, IIP – India Industrial Production, CPI – Consumer Price Index, WPI – Wholesale Price Index, CAD – Current Account Deficit, GDP – Gross Domestic Product
Macro Update
Macro Economy Data Release
Indicator Latest Update Previous Update
IIP 3.10% (May) 4.32% (Apr)
GDP 5.8% (4QFY19) 6.6% (3QFY19)
USD/INR 68.78 (July) 69.02 (June)
WPI 2.02% (June) 2.45% (May)
CPI 3.18% (June) 3.05% (May)
Credit Spread Data in basis points
Tenure AAA AA A
1Y 1.23% 1.71% 2.27%
3Y 1.04% 1.59% 2.48%
5Y 1.07% 1.70% 2.72%
10Y 1.04% 1.79% 2.84%
Average Liquidity Support by RBI
Rs -1266.57 billion (Includes: LAF, MSF, SLF & Term Repo)
Bank Credit Growth Bank Deposit Growth
12.3% 9.9%
Money Market
Tenure CD Change* CP Change*
1M 5.63 -47 5.91 -89
3M 5.85 -50 6.30 -80
6M 6.33 -55 7.15 -55
12M 6.65 -66 7.65 -35
Bond Market
Tenure G-Sec Change* AAA CB Change*
1Y 5.90 -25 7.10 -35
3Y 6.21 -30 7.35 -40
5Y 6.30 -46 7.47 -36
10Y 6.37 -51 7.50 -38
* Change in basis points (bps)
Crude: London Brent crude oil prices (down 2.1%) fell sharply in
July to close at $65.17 per barrel on July 31, 2019 vis-à-vis $66.55
per barrel on June 28, 2019 on the International Petroleum
Exchange (IPE), on concerns regarding global demand growth
amid increasing US-China trade tensions and unexpected rise in US
crude stockpiles.
Inflation: Consumer Price Index (CPI)-based inflation rose for the
fifth consecutive to 3.18% in June 2019 from 3.05% in May 2019.
Currency: The rupee ended higher against the US dollar in July,
with the exchange rate settling at Rs 68.78 per dollar on July 31 as
against Rs 69.02 per dollar on June 28. The local currency’s
exchange rate fluctuated in sync with crude oil prices. Rupee gains
were witnessed after Finance Minister Nirmala Sitharaman said that
the government will raise part of its gross borrowing requirements
via foreign currency borrowings. The domestic currency received
more support tracking gains in Asian units following the release of
Chinese retail sales and industrial output figures.
Gilts: Gilts rose sharply in the month with yield on the 10-year
benchmark 7.26% 2029 paper ending at 6.37% on July 31, 2019,
compared with 6.88% on June 28, 2019. Prices were boosted
earlier on easing concerns over fiscal slippage, after the Centre’s
economic survey predicted fiscal deficit to fall to 3% by fiscal 2021.
The government also announced that it would be revising the fiscal
deficit target to 3.3% for the current fiscal from the earlier estimate
of 3.4% of GDP
Source: CRISIL, data as on July 31, 2019.
Data Source – RBI, Mospi.Nic.in, CRISIL Fixed Income Database, LAF – Liquidity
Adjustment Facility, MSF – Marginal Standing Facility, SLF – Standing Liquidity Facility, CP
- Commercial Paper, CD – Certificate of Deposit, CB – Corporate Bond, IIP – India Industrial
Production, CPI – Consumer Price Index, WPI – Wholesale Price Index, CAD – Current
Account Deficit, GDP – Gross Domestic Product
FIXED INCOME UPDATE

2. Benchmark 10 year treasury yields averaged at 6.53% in July (40bps lower vs. June avg.). As on month end, the yields
have declined 51bps (-100bps ytd) and are now close to Nov'16 lows as inflation remains well behaved, economy slows
down and the RBI’s policy stance turned dovish, buoying hopes of further rate cuts. RBI has reduced the policy rate by
75bps on ytd basis.
Equity and bond markets have witnessed divergent trends post the budget with Debt markets rallying - 10 Year G-Sec
closed at 6.36% as on July end. The sentiments for debt market were bolstered with the government considering
borrowing more in the overseas financial markets, given the current low levels of sovereign external borrowings. This may
mitigate supply of bonds locally.
As highlighted earlier, the RBI has delivered 75 bps rate cut in CY’19. However, major concerns remain with the
transmission of rates, despite having surplus liquidity in the system. The limited transmission is mainly due to 1. Broken
Transmission channels (Credit concerns and crowding out effect keeping the corporate bond rates at elevated levels)
2.High MCLR Rate (Marginal cost of lending rate) 3. Higher Non-Performing Assets making banks risk averse in lending
4.High small savings rate, acting as a major deterrent for banks to reduce deposit rate.
Going forward, with the inflation trajectory remaining in the RBI comfort zone and with the economy going through
consumption and investment slowdown, we expect RBI to cut rates by ~50 bps in 2019. However, we remain watchful of
RBI measures to address the structural and cyclical factors hampering the transmission of rate cuts. Structural factors like
low deposit growth vs credit growth, high fiscal deficit creating crowding out effect and high demand for credit post NBFC
concerns are the ones which are more challenging and without a resolution on this front the pain of transmission of rates is
expected to continue.
We expect liquidity to improve due to the following factors:
1. RBI using various liquidity improving tools
2. Compression of corporate bond spread
3. June- September seasonally being less stressful for system liquidity. Improvement in liquidity conditions in the coming
month would be positive for the shorter end of the yield curve and hence we recommend investors to invest in schemes
with 1-4 Year of modified duration, which stands to benefit from the short term rates coming down.
Our framework signals that accrual schemes have moved into ‘buy’ territory with attractive valuations (spread between
repo rate), reduced flows, and negative sentiments (NBFC liquidity crunch). The risk-reward benefit has turned favourable
and it’s a good time to earn the carry with high credit spreads available in the corporate bond space. Having said that, we
remain cognizant of managing the liquidity, concentration, credit and duration in our accrual portfolios to provide better
risk-adjusted returns.
We recommend short duration schemes to mitigate interest rate volatility, accrual schemes which provide better carry and
dynamic duration schemes which are flexible enough to benefit out of interest rate volatility.
We remain watchful of any fiscal slippages, reversal in prices of any perishable food items, uncertainty regarding global
events and evolving trade relationships between the US and China.
Debt Valuation Index considers WPI, CPI, Sensex YEAR-ON-YEAR returns, Gold YEAR-ON-YEAR returns and Real estate YEAR-ON-YEAR returns over G-Sec yield, Current
Account Balance and Crude Oil Movement for calculation.
Debt Valuation Index
Our Outlook

3. Our Recommendation
For new allocations we recommend short to medium duration, accrual based schemes or dynamically managed schemes.
Our Recommendations
Cash
Manage
ment
Solutions
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 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 Savings Fund (An open ended low duration debt scheme investing
in instruments such that the Macau- lay duration of the portfolio is between 6
months and 12 months.)
These schemes
aim to benefit
from better risk
adjusted returns
Short
Duration
Scheme
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 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.)
These schemes
aim to benefit
from mitigating
interest rate
volatility
Accrual
Schemes
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)
These schemes
aim to benefit
from capturing
yields at elevated
levels.
Dynamic
Duration
Scheme
ICICI Prudential All Seasons Bond Fund (An open ended dynamic debt scheme
investing across duration)
This scheme aims
to benefit from
volatility by
actively managing
duration.
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. Note: 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.
Riskometer
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.

4. 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 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 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 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 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.

5. 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 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 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.
Mutual Fund investments are subject to market risks, read all scheme related
documents carefully.
In the preparation of the material contained in this document, the AMC has used information that is publicly
available, including information developed in-house. Information gathered and material used in this document is
believed to be from reliable sources.The Fund however does not warrant the accuracy, reasonableness and/or
completeness of any information. For data reference toany third party in this material no such party will assume any
liability for the same. All recipients of this material should before dealing and or transacting in any of the products
referred to in this material make their own investigation, seek appropriate professional advice and carefully read the
scheme information document. We have included statements 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 monitory and interest policies of India, inflation, deflation, unanticipated turbulence in
interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets
in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the
industry. All data/information used in the preparation of this material is dated and may or may not be relevant any
time after the issuance of this material. The AMC takes no responsibility of updating any data/information in this
material from time to time. The AMC (including its affiliates), the Fund 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. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material.
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