Triggers to watch out for:
1. Our Equity Outlook
2. Market Cap Valuations
3. Our SIP Recommendations
4. Our Fixed Income Outlook
5. Investment Philosophy
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
SEPTEMBER 2019
2. Global Indices Performance
• Globally, markets ended in
negative terrain primarily due
to trade tensions and
recession fear. In the UK,
worries around Brexit also
added to the pain.
• India outperformed its global
peers by ending marginally
negative (-0.4%)
Germany - DAX Index; China - SSE Composite Index; France - CAC 40 Index; Japan - Nikkei; Eurozone - Euronext 100; Hong Kong - HangSeng; 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: ACEMF; Returns are absolute returns for the index calculated between July 31, 2019 – August 31, 2019. Past performance may or may not be sustained in future 2
-0.2 -0.4 -0.7 -0.7
-1.4 -1.6 -1.6 -1.7 -2.0
-3.3
-3.8
-4.5
-4.9 -5.0
-6.6
-7.5-8
-7
-6
-5
-4
-3
-2
-1
0
Switzerland
India
Brazil
France
China
Europe
Indonesia
US
Germany
Taiwan
Japan
SouthKorea
Russia
UK
Singapore
HongKong
Returns(%)
Returns Performance - August 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:ACEMF ; Returns are absolute returns for the TRI variant of the index calculated between July 31, 2019 – August 31,
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).
3
• Over the month, Consumer
Durables outperformed due
to its defensive traits in a
volatile environment. IT
Services delivered positive
returns due to tailwinds from
a sharp depreciation of the
INR.
• Metals witnessed sharp
decline due to US-China
Trade War
4.9 3.7 2.7 2.4 1.6
0.3 0.2 0.2
-0.9
-2.5 -3.1 -3.4
-5.3 -5.7 -5.8
-11.9
-16
-12
-8
-4
0
4
8
CD
Energy
IT
Auto
HC
Oil&Gas
FMCG
Telecom
Realty
Finance
Power
CG
Bankex
Infra
BasicMaterials
Metal
Returns(%)
Returns Performance - August 2019
5. Global Scenario
5
Globally, markets remain watchful due to following concerns
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
Source: CRISIL
6. Markets remained volatile due to
US-China Trade war
6
Trade
associations send
the US President a
letter seeking to
postpone all
scheduled tariff
increases
The US President
at the G7 summit
announced that
China was willing
for negotiations; a
claim that China
rejected
Chinese Ministry of
Finance announces
new rounds of
retaliatory tariffs on
$75 billion worth of
U.S. goods, effective
beginning
September 1, 2019
• The central bank of
China let the Yuan
fall over 2% in
three days.
• China also orders
state-owned
enterprises to stop
buying US
agricultural
products.
US President delays
some of the tariffs to
avoid harming
American consumers
during the Christmas
shopping season
US announces an
additional 10%
tariff (later revised
to 15%) on
additional $300
billion of goods
August 1 August 5 August 13 August 23 August 26 August 28
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 $ 16.8 Trillion out of US $ 55 Trillion
Source: Morgan Stanley Research. Data as of August 31, 2019.
5
7
9
11
13
15
17
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-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 August 31, 2019. ECB – European Central Bank
-0.7
-1
0
1
2
3
4
5
6
Aug-00
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-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 August 31, 2019
-0.27-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Aug-00
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-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
2.4
2.7
2.1
1.5
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.2
2.4
2.6
2.8
3.0
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y
US10YYields(%)dataasonAug-19
US10YYields(%)dataasonDec-18
US 10Y Treasury Yields (%)
Dec-18 Aug-19
Yield Spreads
10Y - 3M 10Y - 2Y
-0.49 0.00
Yield spreads have
turned negative/flat
Source: CRISIL. Data as of August 31, 2019
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.
With valuations moving
to yellow post recent
corrections, we believe it
is a good time to be
constructive on equities
104.06
50
70
90
110
130
150
170
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-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 : Motilal Oswal, Data as of August 31, 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
0
5
10
15
20
25
30
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
EPSGrowthYoY(%)
Nifty50PE
Valuations Vs. Earnings Growth
Nifty 50 PE EPS Growth YoY (%)
15. Midcap Valuations
15
PBV – Price to Book Value. Source : Motilal Oswal, Data as of August 31, 2019
Post the recent corrections in midcap space, valuations have turned reasonable.
1.80
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
NiftyMidcap100P/BV
Nifty Midcap 100 Price to Book Value
Nifty Midcap 100 P/BV Long Term Average
16. Valuations –
Market Cap Analysis: Smallcap
16
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 Aug-19
Top-100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73 73.8
101-250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16 15.3
Above
250
12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12 11.7 10.8
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 August 31, 2019. Universe considered is all listed stocks on NSE.
Post the recent correction in smallcap space, valuations have turned reasonable (similar to the trend seen historically)
17. Cycle – Time to Add Equities
17
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
Past performance may or may not be sustained in the future . The above list is illustrative and not exhaustive, there are several other events that may cause market cycles to change.
18. 18
Triggers – Equity
Positive
Sharp drop in Current Account
Deficit
Negative
Hawkish Global Central Banks
Positive
Increase in Real estate
volume & deleveraging
Positive
Recent measures announced by
the Government
to bolster growth
19. 19
Triggers –
Key Govt. announcements positive for Equities
Source: Nomura. NBFC – Non Banking Finance Companies, MSME – Medium and Small Enterprises, MFI – Micro Finance Institution, MCLR – Marginal Cost of Fund Based Lending Rate
Shadow Banks
• Additional liquidity support of INR200bn for
Housing Finance Companies
• Public sector banks to fast-track collaboration
with NBFCs on loans eventually for MSMEs,
small traders self help groups, and MFI
clients
Banks
• Banks have decided to launch repo-rate
linked products and have agreed to pass on
all Repo Rate cuts into their MCLR.
• Additional capital of INR700bn has been
sanctioned for banks
• PSU Bank mergers to lead to synergies to
revive credit growth in the economy.
Infrastructure
• Govt. will establish an organisation for credit
enhancement for infrastructure projects
• Inter-ministerial taskforce to be set up to
finalise pipeline of projects
• 75% of arbitration awards to be cleared post
decision
Capital Markets
• Govt. plans to develop the credit-default
swap market.
• To bring offshore rupee market to domestic
stock exchanges
20. 20
Sentiments –
Flows moderating; Time to add Equities
32,242
22,525
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 - till
July'19
Monthly Average (INR Crs)
The data is excluding Arbitrage/Exchange Traded Funds, Data as on July 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
21. To Sum Up…
21
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
22. Outlook – Asset Allocation, Value &
Special Situations Theme
22
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
23. Schemes to manage Volatility:
Our Asset Allocation Bouquet
23
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
24. 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
24
“Allocate between equity and debt at right time without tax impact*”
The Right Allocation is not only dependent on Equity Valuation, also considers 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 August 31, 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
25. ICICI Prudential Asset Allocator Fund
25
An In house Market Valuation Model allows “Buying Low and Selling High” while keeping human emotions aside
EQUITY
VALUATION
GOES UP
REDUCE
EQUITY EXPOSURE
EQUITY
VALUATION
COMES DOWN
INCREASE
EQUITY EXPOSURE
The asset allocation and investment strategy will be as per Scheme Information Document.
26. ICICI Prudential Asset Allocator Fund –
Equity exposure during Various Market Cycles
26
The model exhibits the principles of “Buy Low, Sell High” by increasing equity exposures when markets have fallen and vice-versa
In house equity valuation index model has been used for calculation purpose which is being used for managing ICICI Prudential Asset Allocator fund & from 4th feb 2019 actual fund NAV has been taken Past performance may or may
not sustain in future. Source: MFI. *MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit
http://www.icraonline.com/legal/standard-disclaimer.html. The above allocation is for understanding the in-house allocation model. The asset allocation and investment strategy will be as per Scheme Information Document. Period
considered: March 31, 2010 to August 31, 2019. The performance of the model does not represent the performance of the scheme. The performance of the scheme is benchmarked to the Total Return variant of the Index.
20509
15455
18620
29183
23002
38645
37333
10%
81%
70%
26%
63%
12%
46%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
10000
15000
20000
25000
30000
35000
40000
Mar-10
Oct-10
Jun-11
Jan-12
Aug-12
Mar-13
Oct-13
May-14
Dec-14
Jul-15
Feb-16
Sep-16
Apr-17
Nov-17
Jun-18
Jan-19
Aug-19
Sensex (LHS) Equity Level (%) (RHS)
SensexLevels
ICICIPrudentialAssetAllocator
Fund*EquityLevel(%)
27. Schemes to benefit from Value &
Special Situations Theme
27
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
28. ICICI Prudential India Opportunities Fund
28
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
29. Schemes to benefit from long term growth story
29
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%
30. ICICI Prudential Smallcap Fund
30The asset allocation and investment strategy of the scheme will be as per the Scheme Information Document
Robust Investment
Process
Portfolio Construction
and Investment Strategy
Large & Midcap Exposure:
10 – 30% for tactical
allocation & liquidity purpose
Solid Research and
Screening Process
No. of Stocks: 40 – 65
Smallcap Exposure: 70 – 90%
of portfolio
Young and agile
(AUM as on August 31,
2019 is Rs. 412.89 Crs)
31. Why Smallcaps?
31
In the last 5 years, out of the top 500 stocks listed, smallcap segment has created more number of
multibaggers as compared to large and midcaps
67
1
16
88
4
14
110
7
23
0
30
60
90
120
1x-5x 5x-10x Between 50-100% returns
No.ofStocks
Largecap Companies Midcap Companies Smallcap Companies
The universe considered is Nifty 500 Index constituents. The above analysis is done on top 500 companies by market capitalization i.e. Top 100 Companies by market cap are classified as Largecap, The next 101st-250th
companies by market cap are classified as Midcap; 250 and beyond are considered as Smallcaps. Data is as of August 31, 2019. Source: Capitaline. Returns generated are of the past 5 years and in absolute terms.
Securities which are currently listed and were not listed 5 years ago are not considered. Above returns do not represent scheme returns
32. ICICI Prudential Multicap Fund
32
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
33. Our SIP Recommendations
33
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)
35. Current situation in the Fixed Income Space
35
Source: CRISIL Research; FY refers to fiscal year ends Apr - Mar; *Inflation (CPI) is for the month of July-19, Currency, Crude Oil prices as on August 31 2019 , Forex Reserves as on 23-August-2019, US 10Yr G-
sec(%) as on August 31, 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 60.4*
GDP Growth (%) 5.6 6.6 7.2 7.9 7.9 7.3 5.0
Forex Reserves (USD bn) 292 304 342 356 370 424 397*
Currency (USD/INR) 54.3 59.9 62.5 66.3 64.9 64.5 71.4*
US 10YR G-sec (%) 1.85 2.72 1.92 1.77 2.39 2.78 1.5*
36. Current situation in the Fixed Income Space
36
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
37. Our Outlook
37
GLOBAL
Global environment remains supportive of lower rates with oil prices ~$60 as on August 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 relatively positive on short/medium corporate bond & accrual funds,
which seem attractive on the risk reward benefit.
39. Valuations –
Spread Compression in Corporate Bonds
39
Corporate Bond spread over Repo at an elevated levels. Going forward, we expect spread to compress
Source: CRISIL Research; Data as of August 31, 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
1-3 Year segment most attractive in the
corporate bond space
S
P
R
E
A
D
Avg.
230 bps
Avg.
170 bps
Avg.
78 bps
40. Valuations –
ICICI Prudential Credit Risk Fund:
Spread Over Repo (Since Inception)
40
Data as on August 31, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future. Inception Date: 3-Dec-10
Average Spread :
2.93
Current Spread :
4.89
0
1
2
3
4
5
6
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
YieldSpreads(%)
41. 41
Data as on August 31, 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
Average : 2.13
Current Spread :
4.46
-3
-2
-1
0
1
2
3
4
5
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
42. 42
Cycle – Repo Rate Movement
• In Phase I, rates are expected to
decline. Hence, building high
duration portfolio is considered to
be beneficial as it may lead to
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
may provide 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
43. Triggers – Debt
43
Positive Negative
Global Rates dovish Fiscal Deficit
Crude Oil ~$60 as on August end Trade & Current Account Deficit
Domestic Growth slowdown
Inflation below RBI target
RBI rate cuts with surplus liquidity
44. Sentiments – Muted Flows
44
Source: MFI. *MFI Explorer is a tool provided by ICRA Online Ltd. For their standard disclaimer please visit http://www.icraonline.com/legal/standard-disclaimer.html. The funds considered are only Credit Risk Funds as per SEBI
classification. Data as of July 31, 2019
90,924
76,195
70,638
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
Credit Risk Funds Category AUM (In Crs) - Industry Level
45. Play on Carry –
Strong case for investment in Credit Risk Funds
45
Valuations are attractive
Industry Flows are slowing
down
Sentiments are Negative
46. High Accrual Portfolio
Data as of August 31, 2019; Past performance may or may not be sustained in future.
46
Scheme Name
Yield to Maturity
(YTM)
Average
Maturity (Yrs.)
Modified
Duration (Yrs.)
ICICI Prudential Credit Risk Fund 10.29% 1.78 1.42
ICICI Prudential Medium Term Bond Fund 9.86% 2.58 1.87
47. High Quality Portfolio
Data as of August 31, 2019; Past performance may or may not be sustained in future. *AAA, G-Sec and Cash
47
Scheme Name
Yield to Maturity
(YTM)
Modified
Duration
Exposure to
AAA*
securities
ICICI Prudential Money Market Fund 6.14% 156.25 Days 100.0%
ICICI Prudential Savings Fund 6.95% 288.87 Days 86.1%
ICICI Prudential Short Term Fund 7.73% 1.95 81.3%
ICICI Prudential Corporate Bond Fund 7.22% 1.73 100.0%
ICICI Prudential Banking & PSU Debt Fund 7.44% 2.50 78.24%
48. Why ICICI Prudential Accrual Funds
48
Investment
Philosophy
Strong Credit
Selection
Process
Robust
Investment
Process
Better Risk
Adjusted
Returns
50. Robust Investment Process
50
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
51. Strong Credit Selection Process
51
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
52. Outlook – Play on Liquidity & Carry
52
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; good time to
earn carry with high credit spreads available in the
corporate bond space
NBFC – Non-Banking Financial Companies
53. 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.
53
2.50
3.46
1
2
3
4
5
6
7
8
9
10
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
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Ultra Low Duration
Low Duration
Moderate Duration
High Duration
Aggressively in High Duration
54. Fixed Income Recommendations
54
ICICI Prudential Floating Interest Fund
Cash Management Solution
(which benefits from better risk adjusted returns)
ICICI Prudential Ultra Short Term Fund
ICICI Prudential Medium Term Bond Fund
Accrual Schemes
(which benefits from capturing yields at elevated levels)
ICICI Prudential Credit Risk Fund
ICICI Prudential All Seasons Bond Fund
Dynamic Duration Schemes
( which benefits from volatility by actively managing duration)
ICICI Prudential Short Term Fund
Low/Short Duration Schemes
(which benefits from mitigating interest rate volatility)
55. 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 and small cap
stocks.
ICICI Prudential India Opportunities Fund An Open Ended Equity Scheme following Special Situations 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.
55
56. 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.
56
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.
57. Our Debt Schemes
57
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.
58. 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
58
59. 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
59
60. 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
60
61. 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
61
62. 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
62
63. 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.
63
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
64. 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
64
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.
65. Riskometers
65
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*:
66. 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.
66