- Globally, markets ended in positive terrain on renewed hopes of positive outcome from high level US-China trade talks scheduled this month.
- Indian Markets cheered the announcement of substantial cuts in the corporate tax rate.
- Sectors which may benefit from lower corporate taxes – Consumer, Energy, Finance, etc. ended on positive note
- Sectors like Healthcare, IT, etc. are likely to benefit relatively less as they have a lower effective tax rate due to export / investment related exemptions
Have a detailed insight into a monthly equity and fixed income market outlook.
Read the full document to know more.
1. The information contained herein is solely for private circulation for reading / understanding of registered Advisors / Distributors and should not be circulated to investors/prospective investors.
Monthly Market Outlook
OCTOBER 2019
2. Global Indices Performance
• Globally, markets ended in
positive terrain on
renewed hopes of positive
outcome from high level
US-China trade talks
scheduled this month
• Indian Markets cheered
the announcement of
substantial cuts in the
corporate tax rate
Germany - DAX Index; China - SSE Composite Index; France - CAC 40 Index; Japan - Nikkei; Eurozone - Euronext 100; Hong Kong – Hang Seng; 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 August 30, 2019 – September 30, 2019. Past performance may or may not be sustained in future. For more
tax related information, consult your tax advisors. MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit http://www.icraonline.com/legal/standard-disclaimer.html 2
5.1 4.8
4.1
3.6 3.6 3.6 3.3 3.1
2.8
2.0 1.9 1.8
1.4
0.7 0.4
-2.5-3
-2
-1
0
1
2
3
4
5
6
Japan
SouthKorea
Germany
France
India
Brazil
Europe
Russia
UK
Taiwan
US
Switzerland
HongKong
China
Singapore
Indonesia
Returns(%)
Returns Performance - September 2019
3. 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 August 30, 2019 –
September 30, 2019; YTD – Year To Date. Past performance may or may not be sustained in future. The sectors)/stock(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 sector(s)/stock(s). For more tax related information, consult your tax advisors. MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit
http://www.icraonline.com/legal/standard-disclaimer.html
3
• Sectors which may
benefit from lower
corporate taxes –
Consumer, Energy,
Finance, etc. ended on
positive note
• Sectors like Healthcare,
IT, etc. are likely to
benefit relatively less as
they have a lower
effective tax rate due to
export / investment
related exemptions
11.310.510.4
8.4
6.7 6.3 6.3 6.3 6.2 5.8
3.7 3.7 2.7
-2.9 -3.0 -3.3
-8
-4
0
4
8
12
16
Oil&Gas
CD
CG
Energy
Metal
Auto
Bankex
Telecom
FMCG
BasicMaterials
Finance
Infra
Power
HC
IT
Realty
Returns(%)
Returns Performance - September 2019
5. Global Scenario
5
Globally, markets remain watchful due to following concerns
Source: CRISIL
The escalating US-China trade tensions have made investors jittery
US China Trade War
Recession fears prevail as interest rates continue their downward
trajectory entering negative territory
Falling Interest Rates
The International Monetary Fund (IMF) World Economic Outlook
forecasted a deceleration from 3.6% in 2018 to 3.2% in 2019
Global Growth Slowdown
6. Markets remained volatile due to
US-China Trade war and its cascading effect on Global Economy
6
The US concerned that
the trade war was
weakening the American
economy and were
discussing ways to reach
a limited interim deal
After China announced
it was exempting 16
American product types
from tariffs for one year,
the US announced a
delay in tariff increase
on Chinese goods
previously scheduled
for October 1
The Office of the
U.S. Trade
Representative and
Chinese state media
confirmed
ministerial level
talks
The People's Bank of
China announces a 0.5%
reduction in its reserve
requirement ratio in
response to the slowing
of China's economic
growth rates
China imposed 5% to
10% tariffs on one-third
of the 5,078 goods. The
US imposed new 15%
tariffs on about $112
billion of Chinese
imports
September 1 September 4 September 6 September 11 September 12
Source: Bloomberg news
7. Global Bond Yields –
Moving in the Negative Territory
7
Total outstanding debt globally in negative yield zone is close to US $ 14.1 Trillion out of US $ 55 Trillion
Source: Morgan Stanley Research. Data as of September 30, 2019.
14.1
5
7
9
11
13
15
17
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
Sep-19
OutstandingDebt($Tn)
Negative Yield ($Trillion)
8. Global Bond Yields –
German Bund 10 Year Yields
8
German bund yields fell well below the ECB‟s deposit rate triggering fears of future recession
Source: Morgan Stanley Research. Data as of September 30, 2019. ECB – European Central Bank
-1
0
1
2
3
4
5
6
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
German Bund 10 Year Yield (%)
9. Global Bond Yields –
Japan Government Bond 10 Year Yields
9
Japan 10 Year Government bond is trading well below it‟s long term average triggering fears of a future recession
Source: Barclays Research. Data as of September 30, 2019
-1
0
1
1
2
2
3
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Japan Government Bond Yield (%)
10. Global Bond Yields –
US Treasury Yields
10
The US yield curve witnessed an inversion after a decade, leading to recession fears
Yield Spreads
10Y - 3M 10Y - 2Y
-0.20 0.1
Yield spreads have
turned negative/flat
Source: CRISIL. Data as of September 30, 2019
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.2
2.4
2.6
2.8
3.0
3M 6M 1Y 2Y 5Y 10Y
US10YYields(%)dataasonSep-19
US10YYields(%)dataasonDec-18
US 10Y Treasury Yields (%)
Dec-18 Sep-19
12. Valuations - Equity Valuation Index
12
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
With valuations moving
from red to yellow post
recent corrections, we
believe it is a good time
to be constructive on
equities
108.19
50
70
90
110
130
150
170
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Invest in Equities
Aggressively invest in Equities
Neutral
Incremental Money to Debt
Book Partial Profits
14. Valuations –
Nifty 50 Valuations & Earnings Growth
14P/E: Price to Earnings. Source : NSE, Motilal Oswal, Data as of September 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
-30
-20
-10
0
10
20
30
40
50
10
15
20
25
30
35
Oct-07
Sep-08
Aug-09
Jul-10
Jun-11
May-12
Apr-13
Mar-14
Feb-15
Jan-16
Dec-16
Nov-17
Oct-18
Sep-19
EPSGrowthYoY(%)
Nifty50P/E
Valuations Vs. Earnings Growth
Nifty 50 P/E EPS Growth
15. Narrow Rally for Nifty 50 Index –
Value Vs. Growth
15P/E: Price to Earnings. Ex – Excluding. Source : NSE, Capitaline, Data as of September 30, 2019. Past performance may or may not sustain in future
37.3
27.3
20
25
30
35
40
45
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
P/E(x)
Nifty 50 Index - Nifty top 10 Vs. Nifty Bottom 40 P/E
Nifty 10 Ex Bottom 40 Nifty 40 Ex Top 10
Current Equity Market Performance is driven by select few growth stocks making value as a theme attractive.
16. Valuations Divergence
16
P/E: Price to Earnings. Source : Edelweiss Financial Services, Data as of September 30, 2019. Past performance may or may not sustain in future
Value and special situation themes expected to play out due to significant disconnect between
valuations of „Growth‟ and „Value‟ stocks
22.5
30.2
5
10
15
20
25
30
35
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
MSCI India Value Vs. Growth Index P/E
MSCI India Value MSCI India Growth
17. Midcap Valuations
17
PBV – Price to Book Value. Source : Motilal Oswal, Data as of September 30, 2019
Post the recent corrections in midcap space, valuations have turned reasonable.
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
NiftyMidcap100P/BV
Nifty Midcap 100 Price to Book Value
Nifty Midcap 100 Price to Book Value Long Term Average
18. Smallcap Valuations
18
PBV – Price to Book Value. Source: NSE. Data as of Sep 30, 2019
The small-cap space has seen significant correction with current valuations close to post demonetization levels
and well below the historic average. This indicates that it is a good time to add smallcaps
1.69
1
1.3
1.6
1.9
2.2
2.5
2.8
Apr-16
Aug-16
Dec-16
Apr-17
Aug-17
Dec-17
Apr-18
Aug-18
Dec-18
May-19
Sep-19
Nifty Smallcap 250 Index P/BV
Average: 1.94
19. Market Cap Analysis: Smallcap
19
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 Sep-19
Top-100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73 74.0
101-250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16 15.1
Above
250
12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12 11.7 10.9
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 September 30, 2019
Post the recent correction in smallcap space, valuations have turned reasonable (similar to the trend seen historically)
20. Cycle – Time to Add Equities
20
B B BB
Good Time to
Invest
Boom BubbleBurst
• Real Estate in 2013
• e-Commerce in
2014
• Bitcoin in 2017
• Equity in 2007 &
2000
• Equity Markets in
2013-16
• Equity Markets in
2009-11
• Debt Accrual
Schemes in 2019
• Equity Markets in
2011 & 2017
• Lehman Crisis 2008
• Dot com burst – 2001
B
Boring
• Equity Markets
currently and in
2012
We are slowly approaching a better time to invest and hence, it may be a good time to add equities at this juncture
21. 21
Triggers – Equity
Positive
Sharp drop in Current Account
Deficit
Negative
Hawkish Global Central Banks
Positive
Increase in Real estate
volume & deleveraging
Positive
Recent government
announcements (like corporate
tax rate cut) to bolster growth
22. 22
Triggers –
Key Govt. announcements positive for Equities
Corporate income tax rate slashed to
17% including surcharge for new
manufacturing companies set up on or
after Oct 1, 2019
Buyback announced by companies before
5th July 2019 would be exempt from tax
Reduction in corporate tax rate from
existing 30% to 22% with reduction in
effective tax rate from 34.9% to 25.2%
(including surcharge and cess)
MAT (Minimum alternate tax)
has been cut from 18.5% to 15%
These measures may help attract more FDI (Foreign Direct Investment) especially companies looking to diversify manufacturing base away
from China. These steps also raise the possibility of the Govt. taking some other bold measures to boost sentiments and its own revenues
Source: CLSA. The announcements were made by the Finance Minister on Sep 20, 2019. Kindly consult a tax advisor for further details
23. 23
Sentiments –
Flows moderating; Time to add Equities
32,242
22,102
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 - till
Aug'19
Monthly Average (INR Crs)
The data is excluding Arbitrage/Exchange Traded Funds, Data as on August 31, 2019. Data Source : MFI Explorer. MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit
http://www.icraonline.com/legal/standard-disclaimer.html
Equity Flows have moderated making a positive case for adding equities
24. To Sum Up…
24
Equity Flows have moderated making a positive case for
adding equities
There are multiple positive triggers like drop in Current
Account Deficit, recent growth measures announced by the
Government, etc. which are a positive for equities
We are slowly approaching a better time to invest and
hence, it may be a good time to add equities
With valuations moving from red to yellow post recent
corrections, it is a good time to add equities to your portfolio
Valuations
Cycle
Triggers
Sentiments
25. Outlook – Asset Allocation, Value &
Special Situations Theme
25
Volatility may
prevail due to
global and
domestic factors
Equity accumulation, in
mid/small/multicaps,
should be in a staggered
manner via SIP/STP
Constructive 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
26. Schemes to manage Volatility:
Our Asset Allocation Bouquet
26
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 TaxationEquity Taxation
27. ICICI Prudential Balanced Advantage Fund
27
Source: BSE India & MFIE, Data as of September 30 2019. The in-house valuation model starts from March 2010 onwards. ICICI Prudential BAF stands for ICICI Prudential Balanced Advantage Fund. The asset allocation and
investment strategy will be as per Scheme Information Document. MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit http://www.icraonline.com/legal/standard-disclaimer.html
18,620
23,002
38,667Net Equity
77.4
Net Equity
77.7
Net Equity
57.5
30
35
40
45
50
55
60
65
70
75
80
15,000
20,000
25,000
30,000
35,000
40,000
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
Sep-19
ICICIPrudentialBalancedAdvantageFund
NetEquityExposure(%)
SensexLevels
S&P BSE Sensex Levels vis-a-vis ICICI Prudential BAF Net Equity Exposure (%)
Sensex Level Net Equity Exposure %
28. ICICI Prudential Balanced Advantage Fund*
28
The “Advantage” of our In-house Price to Book Model that helps to “Buy Low and Sell High”
BAF – ICICI Prudential Balanced Advantage Fund. Data Source – MFI Explorer. Past performance may or may not sustain in the future. Data as on September 30, 2019. MFI Explorer is a tool provided by ICRA Online Ltd. For their
standard disclaimer please visit http://www.icraonline.com/legal/standard-disclaimer.html
* An open ended dynamic asset allocation fund. The asset allocation and investment strategy will be as per Scheme Information Document
39.68
48.32
57.53
3.47
3.41
3.53
2.60
2.80
3.00
3.20
3.40
3.60
3.80
30
40
50
60
70
80
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Nifty50PricetoBookRatio
NetEquityLevelsofICICIPrudential
BalancedAdvantageFund(%)
Snapshot of our In House Price to Book Model over the last 1 year
Net Equity Exposure of BAF % P/B Ratio Nifty
Increased Equity Exposure post
correction in Valuations
29. ICICI Prudential Asset Allocator Fund#
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
29
“Allocate between equity and debt at right time without tax impact*”
The Right Allocation is not only dependent on Equity Valuation, but also 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
+
ICICI Prudential Bluechip Fund
Debt Allocation$
ICICI Prudential All Seasons Bond Fund
+
ICICI Prudential Floating Interest Fund
+
ICICI Prudential Money Market 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 Sep 30, 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
30. Schemes that aim to benefit from
Value & Special Situations Theme
30
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
31. ICICI Prudential India Opportunities Fund
31
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
32. Schemes that aim to benefit from
long term growth story
32
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%
33. ICICI Prudential Smallcap Fund
33The asset allocation and investment strategy of the scheme will be as per the Scheme Information Document
Solid research &
screening process
Well Defined
Investment Strategy
& Portfolio Construct
Young and Agile:
AUM as on September 30,
2019 is Rs. 470.91 Crs
Robust Investment
Process
34. Why Smallcaps?
34
Low interest rates, create conducive environment for Smallcaps, as
the cost of capital – a key driver of profitability for small quality companies comes down
Source: RBI, BSE India, Data as of 31-Aug-2019. Past performance may or may not sustain in future
4
5
6
7
8
9
10
0
5,000
10,000
15,000
20,000
25,000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
RepoRate(%)
S&PBSESmallcapIndex
Repo Rate Movement Vs S&P BSE Smallcap Index
S&P BSE Smallcap Index Repo Rate
35. Why Smallcaps?
35
Smallcaps have outperformed large caps in 7 out of 13 time periods by a significant margin post corrections.
Hence, post the recent corrections, the Smallcap category may offer a good entry point
Source: NSE, Data as of March 31, 2019. Past performance may or may not sustain in future
-58%
125%
-7%
15%
-15%
40%
-14%
-100%
-50%
0%
50%
100%
150%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Nifty Smallcap 100 Nifty 50
?
36. ICICI Prudential Multicap Fund
36
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
37. Our SIP Recommendations
37
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)
39. Current situation in the Fixed Income Space
39
Source: CRISIL Research; FY refers to fiscal year ends Apr - Mar; *Inflation (CPI) is for the month of August-19, Currency, Crude Oil prices as on September 30, 2019 , Forex Reserves as on 20-September-2019,
US 10Yr G-sec(%) as on September 30, 2019; CAD is for FY 19; FD Estimates from Budget Documents for FY20; GDP is for Q1FY20.
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 60.8*
GDP Growth (%) 5.6 6.6 7.2 7.9 7.9 7.3 5.0
Forex Reserves (USD bn) 292 304 342 356 370 424 396*
Currency (USD/INR) 54.3 59.9 62.5 66.3 64.9 64.5 70.9*
US 10YR G-sec (%) 1.85 2.72 1.92 1.77 2.39 2.78 1.7*
40. Current situation in the Fixed Income Space
40
NBFC – Non Banking Financial Corporation, MCLR - Marginal Cost of Funds Lending Rate, Data Source : RBI
RBI delivered
cumulative 110 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 continues to
remain elevated,
further hampering the
rate transmission
High small savings
rate, major deterrent
for banks to reduce
deposit rate
41. Our Outlook
41
GLOBAL
Global environment remains supportive of lower rates with oil prices ~$61 as on September 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.
43. Valuations –
Spread Compression in Corporate Bonds
43
Corporate Bond spread over Repo are at elevated levels. Going forward, we expect spread compression
Source: CRISIL Research; Data as of September 30, 2019
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
1 Year 3 Year 5 Year 10 Year
Yields(%)
Gsec AAA AA Repo
S
P
R
E
A
D
Avg.
245 bps
Avg.
185 bps
Avg.
87 bps
1-3 Year segment most attractive in the
corporate bond space
44. Valuations –
ICICI Prudential Credit Risk Fund:
Spread Over Repo (Since Inception)
44Data as on September 30, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.
YieldSpreads(%)
45. 45
Data as on September 30, 2019. YTM values taken for the last 10 years. Past Performance may or may not be sustained in future.
YieldSpreads(%)
Valuations –
ICICI Prudential Medium Term Bond Fund:
Spread Over Repo
46. 46
Cycle – Repo Rate Movement
• In Phase I, rates are expected to
decline. Hence, building high
duration portfolio is ideal to
benefit from capital appreciation
• We are currently in the fag end of
Phase II, wherein the rates are
close to the bottom. Hence,
adding Short Duration and
accrual schemes to the portfolio
provides better carry
• In Phase III, rates are expected
to go up. Hence, low duration
strategies are recommended to
reduce capital loss.
High
Duration
Strategy
Short
Duration
+
Accrual
Strategy
Low
Duration
Strategy
PHASE I PHASE II PHASE III
INTEREST RATES
47. Triggers – Debt
47
Positive Negative
Global Rates dovish Fiscal Deficit
Crude Oil ~$61 as on September end Trade & Current Account Deficit
Domestic Growth slowdown
Inflation below RBI target
RBI rate cuts with surplus liquidity
48. Sentiments – Muted Flows
48
Source: MFIE. The funds considered are only Credit Risk Funds as per SEBI classification. Data as of August 31, 2019. MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit
http://www.icraonline.com/legal/standard-disclaimer.html
90,924
76,195
68,520
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1,00,000 Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Credit Risk Funds Category AUM (In Crs) - Industry Level
49. Play on Carry –
Strong case for investment in Credit Risk Funds
49
Valuations are attractive
Industry Flows are slowing
down
Sentiments are Negative
50. Better Accrual Portfolio
Data as of September 30, 2019; Past performance may or may not be sustained in future.
50
Scheme Name
Yield to Maturity
(YTM)
Average
Maturity (Yrs.)
Modified
Duration (Yrs.)
ICICI Prudential Credit Risk Fund 10.29% 1.77 1.41
ICICI Prudential Medium Term Bond Fund 9.60% 2.86 2.07
51. Good Quality Portfolio
Data as of September 30, 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
Exposure to
AAA*
securities
ICICI Prudential Money Market Fund 6.11% 151.34 Days 100.0%
ICICI Prudential Savings Fund 7.04% 324.66 Days 85.40%
ICICI Prudential Short Term Fund 7.70% 1.84 Years 82.29%
ICICI Prudential Corporate Bond Fund 7.34% 1.74 Years 100.0%
ICICI Prudential Banking & PSU Debt Fund 7.51% 2.82 Years 78.85%
52. Why ICICI Prudential Accrual Funds
52
Investment
Philosophy
Strong Credit
Selection
Process
Robust
Investment
Process
Better Risk
Adjusted
Returns
54. Robust Investment Process
54
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
55. Strong Credit Selection Process
55
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
56. Outlook – Play on Liquidity & Carry
56
We continue to remain sanguine towards the short end
of the yield curve and on spread assets
Corporate bond spreads are at elevated levels, we
expect compression of corporate bond spreads to
happen
Liquidity conditions improving is primarily positive for
short end space as compared to the longer end space
Accrual schemes have moved into „buy‟ territory with
attractive valuations, reduced flows, and negative
sentiments (NBFC liquidity crunch).
Risk-reward benefit has turned favourable; could be a
good time to earn carry with high credit spreads
available in the corporate bond space
NBFC – Non-Banking Financial Companies
57. 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 &
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.
57
2.50
Ultra Low Duration
Low Duration
Moderate Duration
High Duration
Aggressively in High Duration
3.70
1
2
3
4
5
6
7
8
9
10
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
Sep-19
Ultra Low Duration
Low Duration
Moderate Duration
High Duration
Aggressively in High Duration
58. Fixed Income Recommendations
58
ICICI Prudential Floating Interest Fund
Cash Management Solution
(which aims to benefit from better risk adjusted returns)
ICICI Prudential Ultra Short Term Fund
ICICI Prudential Medium Term Bond Fund
Accrual Schemes
(which aims to benefit from capturing yields at elevated levels)
ICICI Prudential Credit Risk Fund
ICICI Prudential All Seasons Bond Fund
Dynamic Duration Schemes
( which aims to benefit from volatility by actively managing
duration)
ICICI Prudential Short Term Fund
Low/Short Duration Schemes
(which aims to benefit from mitigating interest rate volatility)
59. 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.
59
60. 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.
60
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.
61. Our Debt Schemes
61
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.
62. 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
62
63. 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
63
64. 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
64
65. 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
65
66. 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
66
67. 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.
67
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
68. 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
68
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.
69. Riskometers
69
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.
*Investorsshould consulttheir financial advisorsif in doubt about whethertheproductis suitablefor 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*:
70. 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.
70