We remain positive on the bond markets. A good strategy may be to create a portfolio with maturity in the range of 2-5 years along with accumulating spread assets to give better carry to the portfolio. Read our Fixed Income Update for Aug 2020

1. August 2020
Interbank call money rates remained below the RBI’s repo rate of 4% in July owing
to surplus liquidity in the system.
Currency in circulation rose 22.8% on-year in the week ended July 24, 2020,
compared with 13.2% growth a year ago. The RBI, via its liquidity window,
absorbed Rs 3611.14 billion on a net daily average basis in July 2020, compared
with net liquidity absorption of Rs 3770.33 billion in June 2020.
Bank credit growth rose 5.8% on-year in the fortnight ended July 17, 2020,
compared with 6.2% on-year growth reported in the fortnight ended June 5, 2020.
Source: CRISIL, data as on July 31, 2020
Macro Update
Macro Economy Data Release
Indicator Latest Update Previous Update
IIP -34.7% (May) -57.6% (April)
GDP 3.1% (4QFY20) 4.1% (3QFY20)
USD/INR 74.80 (July) 75.50 (June)
WPI -1.81% (June) -3.21% (May)
CPI 6.09% (June) 5.84% (March)
Credit Spread Data in basis points
Tenure AAA AA A
1Y 0.68% 1.16% 1.72%
3Y 0.48% 1.03% 1.92%
5Y 0.36% 0.99% 2.01%
10Y 0.48% 1.23% 2.28%
Average Liquidity Support by RBI
Rs -3611.14 billion (Includes: LAF, MSF, SLF & Term Repo)
Bank Credit Growth Bank Deposit Growth
5.8% 10.8%
Money Market
Tenure CD Change* CP Change*
1M 3.35 18 3.53 -17
3M 3.36 11 3.75 5
6M 3.51 1 4.04 -61
12M 3.90 -15 4.65 -70
Bond Market
Tenure G-Sec Change* AAA CB Change*
1Y 3.65 -8 4.10 -15
3Y 4.40 0 4.93 -22
5Y 4.99 -29 5.42 -28
10Y 5.84 -4 6.40 -17
* Change in basis points (bps) 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 –
Certificateof Deposit, CB – Corporate Bond, IIP – India Industrial Production, CPI – Consumer Price Index, WPI –
Wholesale Price Index, CAD – Current Account Deficit, GDP – Gross Domestic Product
Crude: London Brent crude oil prices rose 5.10% in July to close at $43.25 per
barrel on 31th day of the month vis-à-vis $41.15 per barrel on June 30, 2020 on
the International Petroleum Exchange (IPE). Oil prices remained higher through
most of the month mainly on demand growth hopes following stimulus measures
announced by major countries. Falling supply from the US and upbeat economic
data from the US and China also aided the rally. However, increasing coronavirus
cases globally and reports of a possible return of Libyan oil production capped the
rally.
Inflation: CPI inflation in June 2020 was 6.09% on-year, almost touching the upper
end of the Reserve Bank of India’s (RBI) target band of 2-6%.
Currency: The rupee ended higher against the US dollar, with the exchange rate
settling at Rs 74.80 per dollar on July 31 as against Rs 75.50 per dollar on June
30.
Gilts: Gilts rose in the month with the yield on the 10-year benchmark 5.79% 2030
paper settling at 5.84% on July 31, 2020 compared with 5.89% on June 30, 2020.
Source: CRISIL, data as on July 31, 2020
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
Fixed Income Update

2. The short end of the yield curve collapsed with T-bill and CD yields remaining below the repo given excess system liquidity. The 10 year Government
bond ended the month at 5.83% down by 5bps from the previous month.
RBI has been aggressively buying USD to support INR and this led to higher system liquidity which led to increased steepness of the yield curve RBI
has bought USD ~35 billion of forex, from April to date.. RBI is keen on keeping interest rates at record lows and keeping a check on the term
premium to ensure better transmission of rates which in-turn should support in the revival of the economy. The heavy infusion of liquidity is driving
down yields to lows at the short end and is also now getting filtered into yields at the longer end of the curve.
Since June, government bond yields have largely been stable due to fiscal challenges while the credit spreads have dropped significantly. Inflation
has stayed above RBI’s comfort zone mainly due to supply disruption, broad economic indicators continue to show weakness from IIP to vehicle sales
to imports and exports. The monsoons have been above normal across the country and rural indicators such as tractor sales and agri input sales have
shown robust growth indicating that the rural economy can pull up GDP growth despite large scale disruption to industrial activity. The central bank
will focus on expected bad loans once moratorium ends and this may be in the form of sops to borrowers, loan restructuring or formation of a bad
bank.
The long end of the yield curve remains elevated with term premium continue to remain stretched, 364 Day T-Bill spread over 10 Year G-Sec remains
above 200bps clearly highlighting that the risk averseness is still prevalent . The RBI had conducted operation twist to keep rates at the longer end of
the curve in check, which remain elevated around fiscal concerns. On the corporate bond space, credit premium remains high, good quality spread
assets (AA corporate bond) continue to provide better carry over AAA. Flight to safety has pulled the AAA yields closer to ~5%. Clearly, based on the
above scenario i.e. high term premium and favorable credit spread , we have increased duration across our portfolios to benefit from higher term
premium and to benefit from capital appreciation and we have also added spread assets (AA Corporate bond) in our portfolios to benefit better
accrual income. Our recommendation remains to add duration and add spread asset to the portfolio to aim to benefit from a total return strategy.
(Data Source: CRISIL)
Finally, these are interesting times, we are about to see one of the worst growth in decades but interest rates still remains higher than lows seen
during other crisis. We are witnessing 1 month CD collapsing below repo but some of the good quality AA rated corporate bonds still trades at
elevated yields. Even post RBI aggressive rate cuts, we are seeing yield curve which is one of the steepest seen in India’s history.
We remain positive on the bond markets. A good strategy may be to create a portfolio with maturity in the range of 2-5 years along with
accumulating spread assets to give better carry to the portfolio. Having said that, we remain cognizant of managing the liquidity, concentration, credit
and duration in our accrual portfolios to provide investor with better risk adjusted returns. We recommend investors with an appetite for volatility to
invest in Dynamic Duration Scheme.
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
Our Recommendations
Cash
Management
Schemes
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
Schemes
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.
Riskometers
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 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.

4. 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.
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.

5. 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 preparation of the material contained in this document, ICICI Prudential Asset Management Company Limited (the AMC) has used information that is
publicly available, including information developed in-house. 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. The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not be 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 this material. All figures
and other data given in this document are dated and the same may or may not be relevant in future. The information contained herein should not be construed
as a forecast or promise nor should it be considered as an investment advice. 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. The sector(s)/stock(s)
mentioned in this communication do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future
position in these sector(s)/stock(s). Past performance may or may not be sustained in the future. The portfolio of the scheme is subject to changes within the
provisions of the Scheme Information document of the scheme. Please refer to the SID for more details.
The information contained herein is only for the purpose of information and not for distribution and do not constitute an offer to buy or sell or solicitation of any
offer to buy or sell any securities or financial instruments in the United States of America ("US") and/or Canada or for the benefit of US persons (being persons
falling within the definition of the term "US Person" under the US Securities Act, 1933, as amended) or persons residing in Canada.
Disclaimer