In May 2020, interbank call money rates remained below the RBI's repo rate due to excess liquidity influenced by TLTROs aimed at supporting companies affected by COVID-19, as bank credit growth rose to 7.2% year-on-year. The RBI absorbed significant liquidity through various facilities while retail inflation declined to 5.9%. Looking ahead, a combination of fiscal and monetary policies is expected to mitigate economic shocks and support bond markets.

1. May 2020
Interbank call money rates remained below the RBI’s repo rate of 4.4% in April,
amid surplus liquidity in the system. The central bank periodically infused funds
through targeted long-term repo auctions (TLTRO), primarily aimed at providing
liquidity to small- and mid-sized companies impacted by the Covid-19 disruptions.
Currency in circulation rose 14.5% on-year in the week ended April 17, 2020,
compared with 15.8% growth a year ago. The RBI, via its liquidity window,
absorbed Rs 4751.55 billion on a net daily average basis in April 2020, compared
with net liquidity absorption of Rs 2974.92 billion in March 2020.
Bank credit growth rose 7.2% on-year in the fortnight ended April 10, 2020,
compared with 6.1% on-year growth reported in the fortnight ended March 13,
2020.
Source: CRISIL, data as on Apr 30, 2020
Macro Update
Macro Economy Data Release
Indicator Latest Update Previous Update
IIP 4.50% (March) 2.08% (February)
GDP 4.7% (3QFY20) 5.1% (2QFY20)
USD/INR 75.12 (April) 75.68 (March)
WPI 1.00% (March) 2.26% (February)
CPI 5.91% (March) 6.58% (February)
Credit Spread Data in basis points
Tenure AAA AA A
1Y 2.32% 2.80% 3.36%
3Y 1.30% 1.85% 2.74%
5Y 1.17% 1.80% 2.82%
10Y 1.01% 1.76% 2.81%
Average Liquidity Support by RBI
Rs -4751.55 billion (Includes: LAF, MSF, SLF & Term Repo)
Bank Credit Growth Bank Deposit Growth
7.2% 9.5%
Money Market
Tenure CD Change* CP Change*
1M 4.20 -40 5.25 -45
3M 4.40 -25 6.00 30
6M 5.10 -35 6.40 -25
12M 5.30 -30 6.80 -40
Bond Market
Tenure G-Sec Change* AAA CB Change*
1Y 3.93 -69 5.90 0
3Y 4.72 -63 6.08 -7
5Y 5.17 -42 6.40 0
10Y 6.11 -1 7.22 10
* 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 11% in April to close at $25.27 per
barrel on 30th day of the month vis-à-vis $22.74 per barrel on March 31, 2020 on
the International Petroleum Exchange (IPE). Oil prices started the month on a
positive note after President Donald Trump tweeted about expectations that Saudi
Arabia and Russia will sign production cut agreement. Further hopes that OPEC
and its allies (OPEC+) would deliver an output cut and end the price war between
Saudi Arabia and Russia also kept price elevated. Gains were, however, capped
mainly on the back of – a) doubts that OPEC+ output cut deal will not be enough
to offset losses in demand caused by rapid spread of coronavirus pandemic and b)
oversupply woes due to scarcity of storage place in response to drying demand.
Inflation: Retail inflation, based on Consumer Price Index (CPI) fell for the second
consecutive month to 5.9% in March 2020, from 6.6% in February 2020. Food
inflation was back in single digits.
Currency: The rupee strengthened towards the end of April, ending the month at
Rs 75.12 against the US dollar, vis-à-vis Rs 75.68 to a dollar on March 31, 2020.
Gilts: Gilts ended April little changed despite volatility throughout the month. Yield
on the 10-year benchmark 6.45% 2029 paper settled at 6.11% on April 30, 2020,
compared with 6.12% on March 31, 2020.
Source: CRISIL, data as on Apr 30, 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 Benchmark Government Security ended the month at 6.11% lower by 65 bps from a month ago. While, the 3 year AAA, AA and A rated
corporate bond yields ended at 6.08%, 6.63% and 7.08% respectively.
The month saw a slew of measures from the RBI to help ease financial conditions and preserve financial stability.
 First, effective policy rates have been cut 115 bps.
 Second, a large quantum of interbank liquidity has been added (~Rs 3 trillion) to the large surplus that already existed, taking the surplus
to over Rs. 7 trillion. Together, these actions have meant the effective overnight interbank rate (TREPS) has fallen by about 150 bps
compared to mid-March.
 Furthermore, to try and direct system liquidity to different parts of the financial system, the RBI announced targeted long term repos
(TLTROs) via banks for corporate bonds and NBFCs.
 Also, in response to mutual fund redemption pressures, a temporary window for banks to lend to mutual funds has also been opened.
 Separately, a moratorium of repayments to end borrowers for three months was announced, which is outside the three-month NPA
definition, effectively providing a six-month reprieve.
(Source: ww.rbi.org)
While monetary policy has ensured adequate surplus liquidity, the fiscal will also have an important role to play to help reduce the risk aversion
in the banking system through partial loan guarantees, absorbing the first loss on these loans and bank recapitalisation. Going forward, we
expect to see fiscal and monetary policy to combine astutely to prevent amplification of the shocks to the economy in the near term while
avoiding distortions in the medium term.
These measures are mainly intended to reduce term and spread premium which is prevalent across the yield curve and across various credit
instruments. In the short run, most likely this will result in a spread compression of the most credit-worthy names, and thereby exacerbate the
“flight to quality” that is a common phenomenon during periods of crisis. However, once the risk capital improves, market participants will start
their search for yields and this will result in corporate securities rated below AAA to see spread compression, till that time investors can benefit
from the higher carry on such spread assets. RBI’s introduction of TLTROs may nudge banks to participate in the corporate bond market which
may further help in the normalization of the credit spread.
We expect growth and inflation to come down which may provide further headroom to RBI to continue its accommodative stance. On the fiscal
side, we are comfortable with Govt. taking measures to combat COVID-19 impact due to absence of private credit demand (No crowding-out
effect) Keeping the above in mind, we believe the near term appears to be bullish for bond markets. Hence, we have added duration across our
portfolios. Our tactical call seeks to benefit from our bullish view in the short term by taking tactical positions on the longer end of the yield
curve. Hence, we believe that the best strategy may be to create a portfolio with maturity in the range of 2-5 years with combination of short
term assets and long term assets. Focus should be on accumulating spread assets to give better carry to the portfolio with tactical exposure
towards longer term assets to give the capital appreciation flavour.
We continue to re-emphasize that accrual space remains attractive due to Valuation comfort (Spread between accrual schemes and repo),
Negative Sentiments associated with the accrual space and negative industry flows and all time high spread over repo in the accrual space
provides a good margin of safety. We continue to stick to our strong Credit selection process and we remain cognizant of managing the
liquidity, concentration, credit and duration in our accrual portfolios to provide investors with better risk adjusted returns. We recommend
investors who wish to benefit from volatility to invest in Dynamic Duration Schemes.
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