The fixed income update for November 2018 highlights significant liquidity support from the RBI, along with growth in bank credit and deposits. It notes rising inflation rates, a depreciating rupee, and changes in bond and money market yields, while also addressing the nervousness in the market due to a liquidity crunch in the non-banking financial sector. The report recommends various debt fund schemes for investors to consider, reflecting on the broader economic and market conditions.

1. Fixed Income Update
November 2018
Month Overview as on 31st
October, 2018
Average Liquidity Support by RBI
Rs 623.68 bn (Includes: LAF, MSF, SLF & Term
Repo)
Bank Credit Growth Bank Deposit Growth
14.4% 8.9%
Money Market Change in basis points (bps)
Tenure CD Change CP Change
1M 7.00 0 7.85 -30
3M 7.45 27 8.65 35
6M 8.32 52 9.15 40
12M 8.50 -15 9.30 20
Bond Market Change in basis points
Tenure G-Sec Change
AAA
CB
Change
1Y 7.48 -27 8.70 -5
3Y 7.65 -31 8.79 -6
5Y 7.83 -25 8.85 -5
10Y 7.85 -17 8.73 -15
Macro Economy Data Release
Indicator
Latest
Update
Previous
Update
IIP 4.3% (Aug) 6.5% (Jul)
GDP 8.2% 1QFY19) 7.7% 4QFY18)
USD/INR 73.96 (Oct) 72.48 (Sep)
WPI 5.13% (Sep) 4.53% (Aug)
CPI 3.77% (Sep) 3.69% (Aug)
Credit Spread Data in basis points
Tenure AAA AA A
1Y 1.39% 1.91% 2.47%
3Y 0.98% 1.57% 2.46%
5Y 0.86% 1.45% 2.47%
10Y 0.71% 1.46% 2.51%
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
Market Update
Interbank call money rates were mostly below the RBI’s repo rate of 6.50% during
the month. However, some stress was witnessed in the rates on reversal of repo
auctions conducted in earlier sessions and following outflows towards payment
of goods and services tax (GST).
Currency in circulation rose 19.6% on-year in the week ended October 19, 2018
against 6.4% de-growth a year ago. The RBI, via its liquidity window, injected Rs
439.45 billion on a net daily average basis in September 2018 compared with net
liquidity absorption of Rs 0.76 billion in August 2018.
Bank credit growth rose 14.4% on-year in the fortnight ended October 12, 2018
versus 13.5% on-year in the fortnight ended September 14, 2018.
Source: CRISIL
Macro Update
Inflation: Consumer Price Index (CPI)-based inflation rose slightly to 3.77% in
September 2018 from 3.69% on August 2018 as the impact of rising global crude
oil prices and a depreciating rupee was balanced by subdued food inflation and
some softening in household inflation.
Currency: The rupee weakened in October, with the exchange rate settling at Rs
73.96 per dollar on October 31 as against Rs 72.48 per dollar on September 28.
Crude: Brent crude oil prices fell by a sharp 8.76% in October to close at $75.47
per barrel on October 31, 2018 vis-à-vis $82.72 per barrel on September 28, 2018
owing to rising crude oil supplies and concerns about global oil demand in the
wake of the US-China trade war, its impact on the global economy and also the
rout in global equity markets.
Open Market Operation: The RBI conducted Open Market Operations (OMO)
worth Rs 36,000 crore in October and is expected to conduct an additional OMO
of Rs 40,000 crore in November.
Source: CRISIL
Our Outlook
The fixed income market in October 2018 continued to remain nervous on
account of the liquidity crunch in the NBFC sector, weakening currency situation,
and rising interest rates globally. Short-term yields have been on the rise with the
1-yr commercial paper ending the month at 9.3%, up from 9.1% in the previous
month.
The 10-yr G-sec was down 17 bps in October 2018 to 7.85% from 8.02% last
month. The RBI in its October monetary policy maintained key policy interest
rates at 6.5% as inflation trended lower. However, concerns regarding the
liquidity crisis in the NBFC sector kept the shorter-end of the yield curve nervous.
Worries around the currency depreciation saw the RBI selling dollars in the
market, with the central bank having sold dollars worth about USD 34bn in the
last 5 months.
Further, the RBI also conducted Open Market Operations (OMO) worth Rs 36,000
crore in October and is expected to conduct an additional OMO of Rs 40,000 crore
in November.
Foreign investors continued to remain sellers in the bond market having net-sold
debt for Rs 58,864 crore in the ten months so far this year. FPI selling is both a
cause and effect of the weakening rupee against the dollar. Globally interest rates
could go higher – the US Federal Reserve could announce a rate hike before the
year ends while the European Central Bank announced its intention to end its

2. Fixed Income Update
November 2018
bond-buying programme by the end of the year. It already halved its bond purchases to EUR 15 billion starting October 2018.
We believe markets would remain nervous on account of the rupee depreciation, widening fiscal deficit, and global interest rate
scenario. Domestically, GST collections, which crossed the Rs 1 lakh crore-mark, will be watched closely in the run-up to the
elections as will the government’s efforts to contain the fiscal deficit.
We, therefore, recommend investors to stick to low duration schemes which can mitigate interest rate volatility, accrual schemes
which can capture the current yields and dynamic duration schemes which can benefit out of volatility.
Debt Valuation
Debt Valuation Index considers WPI, CPI, Credit Growth, Sensex YOY returns, Gold YOY returns and Real estate
YOY returns over G-Sec yield, Current Account Balance and Crude Oil Movement for calculation.
Our Recommendation
Our Recommendations
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)
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)
These schemes are better suited for
investors looking for accrual
strategy.
Dynamic Duration
Schemes
ICICI Prudential All Seasons Bond
Fund (An open ended dynamic debt scheme
investing across duration)
This scheme can dynamically
change duration strategy based on
market conditions.
1.02
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2
3
4
5
6
7
8
9
10
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Ultra Low Duration
Low Duration
Moderate Duration
High Duration
Aggressively in High Duration

3. Fixed Income Update
October 2018
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)
This scheme maintains short
duration maturity.
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.
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 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

4. Fixed Income Update
October 2018
*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 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.
Disclaimer
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 to any 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
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