Volatility Checks In!

Tue 11-Sep-2018 06:33 PM
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Finally, the equity markets took a breather! The mood of the debt market too remained subdued. While the downward bias in the equity markets was largely in tandem with global equity markets, the mood further sullied by the PNB saga. As interest rates inch upwards and normalizes; Volatility checks itself in!

Bond and Money Market

We present a matrix detailing some movement in some key market rates (domestic and global) and key economic indicators:

Source: Bloomberg

The upward bias in domestic interest rates continued, with the benchmark 10-year Gilt yields moving up by around 30 basis points (bps) during the month. While the MPC meeting resolution appeared a tad dovish, the minutes of the meeting later released during the month, betrayed the sense of dovishness and the market sentiments remained sullied. The inflation prints remained firm and worsening trade deficits too had a somber effect on the market mood. The new US Fed Governor’s testimony before the US House of Representatives too seemed to suggest the street that US Federal Reserve may increase the Fed rate more than street expectations.

Equity Markets

We present charts tracking domestic index and sector, and global indices movements:

Source: Bloomberg | Data as on: 28.2.2018 |Performance – Absolute Returns

Strange are the ways of the market. Our November 2017 newsletter carried a headline “Fortified” alluding to the move to recapitalize PSU banks. The “Fort” almost got breached! Following the PNB saga, the Nifty PSU Bank Index ( -16% for February) is near the levels witnessed before the recapitalization news. It was also a month when equity markets globally came under pressure and the benchmark NIFTY corrected by around 4.90% and the Midcap indices too corrected by around 4.60%. FIIs too pulled out around INR 15,000 crores from the domestic equity markets.

Data Hangover

  • Domestic retail inflation came in at 5.1% in the month of January 2018 –lower from 5.2% in December 2017 and 3.2% in the similar month of previous year. Core inflation remained flat at 5% month over month.
  • Industrial production based on the general index of IIP expanded 7.1 per cent year-on-year in December 2017. Production in the mining, manufacturing and electricity sectors recorded growth rates of 1.2 per cent, 8.4 per cent and 4.4 per cent for December 2017. Consumer durable goods output grew by 0.9 per cent in December as against a de-growth of 5 per cent in the same month of the previous year. Non-durables recorded a growth of 16.5 per cent.
  • The Nikkei India Composite PMI Output Index, a measure of private sector activity in both the manufacturing and services sectors, came in at 52.5 for January. It was at 53 in December 2017.
  • INR depreciated in February against the USD. INR was seen at 65.15 an hour before month end closing, depreciating 2.5%.
  • Trade deficit in the month of January came in at USD 16.9 billion compared to USD 14.9 billion a month ago. Cumulative value of exports for the period April- January stood at $247.9 billion (11.7% y/y) as against $221.8 billion in the year-ago period. Imports during first ten months of the current fiscal amounted to USD 379 billion as against USD 310 billion, a growth of 22.2 per cent.


Quo Vadis

Debt Markets:

We had been cautious on the rates for a long time. Corporate bonds continue to appear richly valued. We think from here on Gilts have the potential to offer a better return tradeoff than corporate bonds and we may position our portfolios accordingly across the debt portfolio. While the uncertainty on the rates would continue to remain (inflation, fiscal deficit, global yields), we would continue maintaining lower duration with bias towards the gilts. However, we are of the opinion that we may be witnessing the last wave of upward rate biases as increased nominal rates globally start gradually attracting potential flows.

Equity Markets:

Midcap index has fallen by 7% in the last two months. Post this correction, the midcap space of market has started to trade below +1SD Forward PE valuations. As we have been highlighting in our earlier outlooks, the significant rise in equities are due to flows (both domestic and international). As probability of higher interest in developed market increases, the propensity of vulnerability in flows towards emerging market increases, possibly leading to higher volatility in markets. The Domestic Equity market is expecting significant earnings pick up in next two years and the probability of that getting achieved is higher due to lower base effect (GST, Demon) and higher inflation (positive for earnings). In such scenarios generally market tends to reward companies who actually deliver earnings far ahead of expectation. So equities can be looked at stock specific and earnings specific.

Scheme specific strategies:

Our overarching strategy in our equity schemes has been towards larger allocation towards these four themes:

a) Home building

b) Premiumisation of consumption

c) Shift towards clean energy through increased Gas consumption

d) Agricultural efficiency

Mahindra Mutual Fund Kar Bachat Yojana

• Invested in companies having valuation comfort on a relative basis

• On a sectoral basis ,we have increased allocation towards Pharma sector

Mahindra Mutual Fund Badhat Yojana

• Focused on companies who have the potential to grow within the sector

• The scheme is overweight/biased towards the four themes we talked about

Mahindra Unnati Emerging Business Yojana

• Companies having focus on a single core competency

• Focused on companies having

a) Significant market share

b) Deleveraging balance sheets

c) Overweight on Pharma sector

Mahindra Dhan Sanchay Equity Savings Yojana


• Blend of both Value and Growth companies

• Overweight on Pharma sector and underweight on IT sector


• The scheme is maintaining a Modified Duration (MD) of around 3.50 on the debt portion, which is below the MD of the underlying Bond Index.

Mahindra Low Duration Bachat Yojana

• We continue to maintain an average maturity of around 200 days, which has cushioned the impact of large upward movement in yields. We intend to continue maintaining such low duration for the future.


Scheme This product is suitable for investors who are seeking* Riskometer
Mahindra Low Duration Bachat Yojana
• Regular income over short term
• Investment in debt and money market instruments

Investors understand that their principal will be at moderately low risk
Mahindra Mutual Fund Kar Bachat Yojana
• Long term capital appreciation
• Investment predominantly in equity and equity related securities

Investors understand that their principal will be at moderately high risk
Mahindra Dhan Sanchay Equity Savings Yojana
• Long term capital appreciation and generation of income;
• Investment equity and equity related instruments, arbitrage opportunities and debt and money market instruments.
Mahindra Mutual Fund Badhat Yojana
• Medium to Long term capital appreciation;
• Investment predominantly in equity and equity related securities including derivatives
Mahindra Unnati Emerging Business Yojana
• Long term capital appreciation;
• Investment predominantly in equity and equity related securities including derivatives of mid cap companies.
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them

The views expressed here in this document are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While utmost care has been exercised while preparing this document, Mahindra Asset Management Company Private Limited (Mahindra AMC) does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The data/statistics given in the document are to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Readers of this document should rely on information / data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Neither Mahindra Mutual Fund, Mahindra AMC nor Mahindra Trustee Company Private Limited, its directors or associates shall be liable for any damages that may arise from the use of the information contained herein

Mutual fund investments are subject to market risks read all scheme related documents carefully.

CNo. 00345

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