monthly market outlook july 2019 monthly market outlook may 2019 - mutual funds india sell... ·...

Monthly Market Outlook

May 2019

Equity & Fixed Income Outlook

Monthly Market Outlook

July 2019

Global Indices Performance

• Russian markets rose 7.3%

during the month owing to a rise

in crude prices (Russia’s key

export) and on easing tensions

of US sanctions on Russia.

• Globally, markets ended in a

positive terrain except India

which declined by 0.8%. The

markets were in the

consolidation phase as the focus

shifted towards the upcoming

budget and measures to counter

growth concerns.

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: MFI & ACEMF; Returns are absolute returns for the index calculated between May 31, 2019 – June 30, 2019. Past performance may or may not be sustained in future

2

7.3 7.2

6.5 6.4 6.1 5.7

4.8 4.4

4.1 3.9 3.7

3.3 2.8

2.4 2.2

-0.8 -2

0

2

4

6

8

Russia

US

Sin

gapore

Fran

ce

Hong K

ong

Germ

any

Europe

South K

orea

Brazil

Sw

itzerla

nd

UK

Japan

Chin

a

Indo

nesia

Taiw

an

India

Returns (

%)

Returns Performance - June 2019

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

May 31, 2019 – June 30, 2019; YTD – Year To Date. Past performance may or may not be sustained in future

3

• Power sector outperformance

was largely driven by decline

in overdues by few power

generating companies

• Oil & Gas Sector

underperformed owing to low

refining margins and

moderation of margins on a

YTD basis

5.8

4.4 3.3

0.0

0.0 -0.3 -0.6 -0.7 -1.2 -1.2

-1.9 -2.7 -2.9 -3.1

-5.1 -5.7

-8

-4

0

4

8

CD

Pow

er

Metal

Realt

y

IT

CG

Fin

an

ce

Bankex

FM

CG

Infra

Basic

Materia

ls

Tele

com

Auto

HC

Energy

Oil &

Gas

Returns (

%)

Returns Performance - June 2019

OUR EQUITY OUTLOOK:

NEUTRAL ON SHORT TERM OUTLOOK.

POSITIVE OUTLOOK FOR LONG TERM.

4

Global & Domestic Macro Scenario

5

Short Term Concerns

6

Burgeoning Fiscal

Deficit

Rise in Crude Oil

Prices

Slow Progression

of Monsoon

Consumption

Slowdown & Ongoing

Agrarian Crisis

Slowdown in

Global Growth

Geo-Political Tensions

i.e. US -China Trade

Issues, US-Iran Issues

7

Source: Yes Securities. US – United States of America. PMI – Purchasing Managers’ Index

Global Growth

• In the US, weakness is

currently seen in Housing, Car

Sales & Manufacturing

• Consumer Spending rose at

1.2% in Q1, down from 2.5% in

Q4 2018

• Fed Atlanta Projects US Q2

GDP is estimated to grow 2%

(q/q) compared to 3% in the

quarter prior

• China is looking at a calibrated

weakening in Yuan to

counterbalance the pain of US

tariffs

• The PMI reading for June was

below 50 (49.4) lowest reading

since January indicating a

slowdown

• New orders fell whereas exports

are showing a downward trend

• European Commission projects

Eurozone GDP to grow at 1.2%

below the 1.9% growth in 2018

• European Central Bank is now

open to rate cuts and new

asset purchases

Global Bond Yields

8

13.08

5

6

7

8

9

10

11

12

13

14

Feb-17

Jun-17

Oct-17

Feb-18

Jun-18

Oct-18

Feb-19

Jun-19

Negative Yield ($ Trillion)

Total outstanding debt globally in negative yield zone is close to US $ 13.08 Trillion out of US $ 55 Trillion

Source: Barclays Research. Data as of July 03, 2019

German Bund 10 Year Yields

9

German bund yields declined well below the ECB‟s deposit rate

-0.36

-1

0

1

2

3

4

5

6

Jul-

01

Jul-

03

Jul-

05

Jul-

07

Jul-

09

Jul-

11

Jul-

13

Jul-

15

Jul-

17

Jul-

19

German Bund 10 Year Yield (%)

ECB – European Central Bank. Source: Barclays Research. Data as of July 05, 2019

-0.15

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Jul-

01

Jul-

03

Jul-

05

Jul-

07

Jul-

09

Jul-

11

Jul-

13

Jul-

15

Jul-

17

Jul-

19

Japan Government Bond Yields (%)

Japan Government 10 Year Bond Yields

10

Japan 10 Year Government bond is trading well below it‟s long term average


World Market Cap – Equity

11

81.07

40

45

50

55

60

65

70

75

80

85

90

Jul-

10

Jul-

11

Jul-

12

Jul-

13

Jul-

14

Jul-

15

Jul-

16

Jul-

17

Jul-

18

Jul-

19

World Market Cap (US $ Trillion)

Negative yields in the debt space, created a conducive environment for other aggressive

assets like Equity despite valuations and growth concerns


Equity can turn volatile, if debt yields turn

positive (US 10 Year Yields)

12

The show can

continue until the

yields do not spike

back, like what

happened during

2013 taper tantrums

1.3

1.8

2.3

2.8

3.3

3.8

Jul-

12

Jul-

13

Jul-

14

Jul-

15

Jul-

16

Jul-

17

Jul-

18

Jul-

19

US 10-Y Yields

Taper

Tantrums

US – United States of America. Source: Barclays Research. Data as of July 05, 2019

13 Source: CRISIL Research; Data as of March 31, 2019; GDP – Gross Domestic Product

7.0%

7.7% 8.0%

7.0% 6.6%

5.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19

GD

P (

%)

GDP Data

Indian Economy slowed down in Q4FY19 to 5.8% from 6.6% in Q3FY19 and 7.7% in Q4FY18. Activities related to

capital expenditure slowed down which led to the fall in GDP

Domestic Growth

14 Source: J P Morgan; LPA – Long Period Average

Though the El-Nino conditions have reportedly weakened, the countrywide rainfall deficit stands at

33% on aggregate basis (June 1 - June 30), stoking further growth concerns

Slow Progression of Monsoon

Region wise Rainfall Trends - % Departure from Long Period Average (June 1 - June 30, 2019)

Actual (mm) Normal (mm) % Departure from LPA

All India 112.1 166.9 -33%

East & North East India 218.2 347.1 -37%

North West India 51.0 75.3 -32%

Central India 117.3 169.2 -31%

South Peninsula 112.8 160.2 -30%

15 Source: Morgan Stanley Research.

Private Consumption showing a downtrend in growth

High Frequency Indicators – Private Consumption

22.3%

17.2%

-6.7%

37.5%

1.6%

-20.5% -30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Apr-18

May-18

Ju

n-18

Ju

l-18

Aug-18

Sep-18

Oct-18

No

v-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

YoY

Grow

th (

%)

Auto Sales (YoY Growth)

Domestic 2 Wheeler Sales (YoY Growth) Domestic Passenger Vehicle Sales (YoY Growth)

16 Source: Morgan Stanley Research.

Number of Air Passengers Flying have been declining Year-On-Year

High Frequency Indicators – Air Traffic

21.7%

15.6%

-5.4% -10%

-5%

0%

5%

10%

15%

20%

25%

Apr-18

May-18

Ju

n-18

Ju

l-18

Aug-18

Sep-18

Oct-18

No

v-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

YoY

Grow

th

Air Passengers Flown

17 Source: CRISIL Research; Data as of June 30, 2019; GDP – Gross Domestic Product

Crude oil prices have been on the rise +9% from the lows of June. This might lead to inflation and may also

impact trade & current account deficit

Crude Prices

50

60

70

80

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Brent Crude (In USD/bbl)

66.6

53.8

Equity Valuations Update:

Indifferent towards

Largecap , Midcap & Smallcap

18

Narrow Rally for Nifty

19

Source: NSE; Returns Data is from Feb 16, 2017 to June 30 , 2019. Past performance may or may not be sustained in future. The stocks/sectors mentioned in this slide do not constitute any recommendation and ICICI Prudential

Mutual Fund may or may not have any future position in these stocks/sectors. The above data is for information purpose only which highlights that the broader market in the past has rallied due to handful of stocks.

Over the last 28 months, Nifty performance (3000 points

rally) was driven by a handful stocks

70

73

82

84

86

111

132

135

215

236

0 50 100 150 200 250

Britannia Industries

ICICI Bank

TCS

HDFC Bank

Kotak Mahindra Bank

Hindustan Unilever

Bajaj Finserve

Reliance Industries

Titan Company

Bajaj Finance

Nifty Gainers over last 28 Months (3000 points rally)

-17

-17

-20

-24

-27

-34

-35

-38

-62

-64

-70 -60 -50 -40 -30 -20 -10 0

IOCL

Hero Motocorp

Coal India

Eicher Motors

Indiabulls Hsg Finance

Vedanta

Zee Entertainment

Sun Pharma

Yes Bank

Tata Motors

Nifty Losers over last 28 months (3000 points rally)

Over the last 28 months, despite 3000 points rally in Nifty,

these constituents saw their market cap shrink

Current Equity Market Performance is driven by select few growth stocks making value as a theme attractive

Nifty 50 Valuations & Earnings Growth

20

-30

-20

-10

0

10

20

30

40

50

0

5

10

15

20

25

30

Mar-07

Dec-08

Sep-10

Jun-12

Mar-14

Dec-15

Sep-17

Jun-19

EP

S G

row

th Y

oY

(%

)

Nif

ty 5

0 P

E

Valuations Vs. Earnings Growth

Nifty 50 PE EPS Growth YoY (%)

P/E: Price to Earnings. Source : Motilal Oswal, Data as of June 30, 2019

Post the rally in the large cap space, valuations are fully priced in and earnings

growth is yet to pick-up

Nifty Midcap Valuations

21 PBV – Price to Book Value. Source : Motilal Oswal, Data as of June 30, 2019

1.96

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Nif

ty M

idcap P

/B

V

Nifty Midcap 100 Price to Book Value

Nifty Midcap PBV Long Term Average

Post the recent correction in the Mid & Smallcap space (refer subsequent slide), we

recommend Mid and Smallcap allocation in a staggered manner.

Market Cap Analysis

22

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

Top-100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73

101-250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16

Above

250 12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12.1 11.7

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 June 30, 2019

Valuations –

Divergence between Growth and Value Stocks

23 Source: Morgan Stanley; Data as of June 30, 2019

Value and special

situation themes

expected to play out

due to significant

disconnect between

price and value in

many „Growth‟ and

„Value‟ stocks

31.5

21.7

10

15

20

25

30

35

Ju

n-14

Sep-14

Dec-14

Mar-15

Ju

n-15

Sep-15

Dec-15

Mar-16

Ju

n-16

Sep-16

Dec-16

Mar-17

Ju

n-17

Sep-17

Dec-17

Mar-18

Ju

n-18

Sep-18

Dec-18

Mar-19

Ju

n-19

P/E ratio of MSCI India growth and MSCI India value

indices, 2010-19 (%)

MSCI Growth Index MSCI Value Index

DECODING

UNION BUDGET

2019-20

Key Budget Announcements

25 FPI – Foreign Portfolio Investors, FDI – Foreign Direct Investment, KYC – Know your Customer, NBFC – Non-Banking Financial Companies, RBI – Reserve Bank of India. Source: Budget Document

Analysis

26

Increase in surcharge on 2 Individual income tax

categories – Surcharge on Taxable income between INR

2-5 cr increased by 3% and INR 5 cr & above by 7%. Now

the highest tax rate in India is 42%*

Government guarantee for the purchase of high-rated

pooled assets of up to INR 1trn indicates that the

Government seeks to address the NBFC concerns

Relaxation of FDI restrictions on certain sectors, easier KYC

norms for FPIs & external borrowing is a positive for foreign

flows

The proposal to increase public shareholding coupled with Government

willing to go below 51% for select CPSEs could lead to an increase in

India‟s weightage in global indices

Government focus on fiscal discipline and low inflation indicates the

probability of further rate cuts. This measure is expected to revive

growth.

Focus on Long Term Growth

More incremental equity on offer

Investor Confidence

NBFC relief

Rich to get more taxed

FPI – Foreign Portfolio Investors, FDI – Foreign Direct Investment, NBFC – Non-Banking Financial Companies, CPSE - Central Public Sector Enterprises, MSCI - Morgan Stanley Capital International, KYC – Know Your

Customer.*Consult your tax advisor for more details on taxation and applicable tax

Impact on Sectors

27

Increase in minimum public shareholding

and a proposal to levy 20% tax on share

buybacks may have a negative impact on

cash rich IT Sector

IT

A Rs. 700 Bn recapitalization budget for

PSU banks and increase in free float due

to proposed rise in public shareholding

could be positive for PSU Banks

PSU Banks

No initiatives on boosting

consumption. Hence less focus

Consumption

Credit Guarantee for high rated NBFCs and

change in Housing Finance Companies regulator

to RBI shows a greater focus on the sector

NBFCs

For high end housing, higher income taxes for

individuals earning Rs. 20 Mn. Is expected to

have a negative impact

Housing

Case for Long Term Investing &

Managing Volatility

28

Staggered investments over long term in the form of SIP in

Equity Schemes may help in wealth creation

Short term volatility to prevail given the current economic

scenario. Asset Allocation Schemes to benefit from

volatility recommended

Implementation of reforms measures and the subsequent

results to take ~3-5 years. A minimum investment horizon

of 3-5 years is recommended

Reforms Continuity & Initiatives to ensure long term

growth story remains intact Reforms

Implementation

Asset Allocation

SIP for Wealth Creation

Outlook – Asset Allocation, Value &

Special Situations Theme

29

Volatility may

prevail due to

global and

domestic factors

Equity accumulation, in

mid/small/multicaps,

should be in a staggered

manner via SIP/STP

Neutral stance on

equities as valuations

look completely priced

in. However the outlook

has improved.

Recommend lump

sum investment in

Asset Allocation

Schemes to benefit

out of volatility

Value and special

situation themes

expected to play

out during 2019

Schemes to manage Volatility:

Our Asset Allocation Bouquet

30

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%

ICICI Prudential

Asset Allocator Fund*^

Net Equity Level*:

0-100%

Fund of

Funds

Debt Taxation Debt Taxation Equity Taxation

The asset allocation and investment strategy will be as per the Scheme Information Document, *This scheme 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 Balanced Advantage Fund*

31

Source: BSE India & MFIE, Data as of June 30 2019. The in-house valuation model starts from March 2010 onwards. ICICI Prudential BAF stands for ICICI Prudential Balanced Advantage Fund.

* An open ended dynamic asset allocation fund. The investment strategy will be as per Scheme Information Document

18,620

29,183

23002

35,965

39,395

Net Equity

77.4

Net Equity

34.3

Net Equity

77.7

Net Equity

31.7

45.9

30

35

40

45

50

55

60

65

70

75

80

15,000

20,000

25,000

30,000

35,000

40,000

Mar'1

0

Apr'1

3

May'1

6

Jun'1

9

IC

IC

I P

ruden

tia

l B

ala

nced A

dvantage F

un

d

Net E

quit

y E

xpo

sure (

%)

Sensex

Levels

S&P BSE Sensex Levels vis-a-vis ICICI Prudential BAF Net Equity Exposure (%)

Sensex Level Net Equity Exposure %

ICICI Prudential Asset Allocator Fund#

*On change in allocation by the scheme. For more details on tax please consult with your tax advisor. The asset allocation and investment strategy will be as per Scheme Information Document. ) 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.

(# An open ended fund of funds scheme investing in equity oriented schemes, debt oriented schemes and gold ETFs/ schemes

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

32

“Allocate between equity and debt at right time without tax impact*”

ICICI Prudential Asset Allocator Fund is an open ended Fund of Funds which has a flexibility to invest across

equity and debt schemes#

Investment Universe:

•Up to 100% in equity mutual fund schemes managed by ICICI Prudential Mutual Fund or any other Mutual

Fund(s)

•Up to 100% in debt mutual fund schemes managed by ICICI Prudential Mutual Fund or any other Mutual

Fund(s)

Allocation between asset classes

•The Scheme will be actively managed by experienced Fund Managers.

•The Scheme allocates between equity and debt mutual fund schemes based on in-house valuation model.

Schemes to benefit from Value & Special

Situations Theme

33

Fund of

Funds

*An open ended equity scheme following special situations theme. ^An open ended equity scheme following a value investment strategy. The 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

ICICI Prudential India Opportunities Fund

34

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

Schemes to benefit from growth story

35

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 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


ICICI Prudential

Smallcap Fund*

A Smallcap fund with


ICICI Prudential Smallcap Fund

36 The investment strategy of the scheme will be as per the Scheme Information Document

Robust Investment

Process

Portfolio Construction

and Investment Strategy

Large & Midcap Exposure:

Generally, 10 – 30% for

tactical allocation &

liquidity purpose

Strong Research and

Screening Process

No. of Stocks: 40 – 65

Smallcap Exposure:

Generally, 70 – 90% of portfolio

Young and agile

(AUM as on June 30,

2019 is Rs. 368.62 Crs)

ICICI Prudential Midcap Fund –

Investment Universe


Compounders with

Stable Growth

Long Term Wealth Creators

with Stable Growth

Consumption ideas, Brands

& High moat businesses

Structural

Growth

Long Term Wealth creators

Beneficiaries of Structural

changes in economy

Cyclical

Growth

Tactical Compounders

Beneficiary of Economic

Cycles

ICICI Prudential Multicap Fund


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

Our SIP Recommendations

39

ICICI Prudential

Value Discovery

Fund

(An open ended equity

scheme following a

value investment

strategy)

ICICI Prudential

Large & Midcap

Fund


scheme investing in both

largecap and midcap

stocks)

ICICI Prudential

Smallcap Fund


scheme predominantly

investing in smallcap

stocks)

ICICI

Prudential

Midcap Fund


scheme predominantly

investing in mid cap

stocks)

ICICI Prudential

US Bluechip Equity

Fund


scheme investing

predominantly in

securities of large cap

companies listed in

the United States of

America.)

Equity Valuation Index

40

Equity valuations show that

the market valuations are in

the zone where investors are

recommended to invest in

Asset Allocation / Balanced

Advantage Funds & Credit

Risk/Medium Duration Funds

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

115.35

50

70

90

110

130

150

170

Ju

n-06

Ju

n-07

Ju

n-08

Ju

n-09

Ju

n-10

Ju

n-11

Ju

n-12

Ju

n-13

Ju

n-14

Ju

n-15

Ju

n-16

Ju

n-17

Ju

n-18

Ju

n-19

Invest in Equities

Aggressively invest in Equities

Neutral

Incremental Money to Debt

Book Partial Profits

OUR FIXED INCOME OUTLOOK:

PLAY ON LIQUIDITY & CARRY

41

Macro Economic Situation – Broad Parameters

42

Source: CRISIL Research; FY refers to fiscal year ends Apr - Mar; *Inflation (CPI) is for the month of May-19, Currency, Crude Oil prices as on 05 July 2019 , Forex Reserves as on April-2019, US 10Yr G-sec(%)

as on 04 July 2019; CAD is Q3FY19 print; FD Estimates from Budget Documents for FY20; GDP is for Q4FY19.

Fiscal Year Ends FY13 FY14 FY15 FY16 FY17 FY18 FY19 Latest*

Inflation (CPI%) 10.2 9.5 5.9 4.9 3.8 3.6 3.4 3

Current Account (% GDP) -4.8 -1.7 -1.3 -1.1 -0.6 -1.9 -2.4 -2.5

Fiscal Deficit (% GDP) 4.9 4.5 4.1 3.9 3.5 3.5 3.4 3.4

Crude Oil (USD/barrel) 109 107 53 39 60 57.8 64.5 64.23

GDP Growth (%) 5.6 6.6 7.2 7.9 7.9 7.3 6.8 5.8

Forex Reserves (USD bn) 292 304 342 356 370 424 413 419

Currency (USD/INR) 54.3 59.9 62.5 66.3 64.9 64.5 69.9 68.40

US 10YR G-sec Yields (%) 1.85 2.72 1.92 1.77 2.39 2.78 2.41 2.03

Current Fixed Income Market Scenario

43

RBI has delivered 75 bps rate cut in CY’19

Despite the rate cuts, the corporate bond rates & spreads continue to remain high

Rate Transmission channel are broken due to credit concern, NBFC slowdown and

crowding-out effect.

Banks Marginal Cost of Lending Rates (MCLR) continue to remain elevated, which has

further hampered the rate transmission process

High small savings rate has been a deterrent for banks to reduce deposit rate even with

75 bps rate cuts.

5.5

5.6

5.7

5.8

5.9

6.0

6.1

6.2

6.3

6.4

6.5

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Repo Rate (%)

RBI has cut rates by 75 bps in CY‟19

44

RBI has cut Repo rates and SLR (Statutory Liquidity Ratio) rates by 75 bps in CY 19.

However, the transmission continues to remain challenging

Source : RBI, Data as on 30-June-2019;

Transmission channels are broken –

Corporate bond spread

45

Corporate Bond spreads remain elevated due to crowding out effect and due to credit concerns. This

has resulted into limited transmission of rates

Source : CRISIL Research, Data as on 02-Jul-2019

7.83

8.42

5.75

5

6

7

8

9

10

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19

AAA - 3 Year AA - 3 Year Repo Rate

What lies ahead?

46

Currency in circulation(CIC) before the festival season is expected to remain low

Govt. surplus is expected to remain low post the increase in non-discretionary spending

which is positive for system liquidity

Additionally, RBI is expected to pass on dividend income to the GOI, which will add to

core liquidity surplus

Finally, RBI has been maintaining accommodative stance for liquidity and has proactively

used various liquidity easing tools. We expect the stance to continue

Core liquidity may further increase depending on Reserves committee recommendations

and implementation

Play on Liquidity –

System Liquidity likely to turn positive

47 Source : RBI, Data as on June 8, 2019

Liquidity

Conditions have

moved into the

surplus mode and

we believe system

liquidity will

continue to

improve

-40

-20

0

20

40

60

80

100

Dec-14

Mar-15

Ju

n-15

Sep-15

Dec-15

Mar-16

Jun

-16

Sep-16

Dec-16

Mar-17

Ju

n-17

Sep-17

Dec-17

Mar-18

Ju

n-18

Sep-18

Dec-18

Mar-19

Jun

-19

Daily Interbank Liquidity (in US$, Bn)

Currency in Circulation (CIC )Trend Seasonal Trend

48

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Currency in Circulation MoM% 5Y Avg

Currency in circulation dips in

sequential terms between Jun-Sept Seasonally, the

May-September

period is when the

CIC reduces due to

lower demand, this

is positive for the

liquidity.

Source : RBI, Data year on year for the last 5 Year average

RBI Dividend to Government

49

Source: RBI, Budget, Morgan Stanley Research *Includes Interim dividend of INR100bn in F2018. ** Includes interim dividend of INR 280bn in F2019. Note the years are as per GoI's fiscal year

accounting (Apr-Mar)

RBI usually

transfers the

surplus dividend to

the government in

August. This will

further boost the

system liquidity

54.5

71.4

65.3

39.5

73.0

0

10

20

30

40

50

60

70

80

F2015 F2016 F2017 F2018* F2019**

Surplus Transferable to the Government of India (INR '000cr)

Going Forward - RBI Expected to Ease Liquidity

50

RBI Tools

OMO

Purchases

Cash Reserve

Ratio

Foreign

Exchange

SWAP

Accommodative

Stance

Dividend &

Reserve

Segment of yield curve, which stands to benefit

51

As repo rate moves down from here, the yield curve tends to steepen

making the short end of the yield curve attractive

The corporate bond is at elevated levels and we expect compression of

corporate bond spreads over repo to happen

Liquidity conditions improving is positive more for the short end space as

compared to the longer end space.

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

1 Year 3 Year 5 Year 10 Year

AAA AA Gsec Repo

Spread compression in Corporate Bonds

52

Corporate Bond

spread over Repo

rate are at an

elevated levels.

Going forward, we

expect spread

compression in

corporate bond

space.

S

P

R

E

A

D

Source: CRISIL Research; Data as of July 05, 2019

5

6

7

8

9

10

11

12

13

14-6,00,000

-5,00,000

-4,00,000

-3,00,000

-2,00,000

-1,00,000

-

1,00,000

2,00,000

3,00,000

4,00,000

Liquidity (In Crs.) 1 Year AAA Yield (%) 10 Year AAA Yield (%)

Improvement in Liquidity Conditions & Short End Space

53

Surplus Zone

Deficit Zone

Liquidity

conditions is

expected to

improve as

discussed in the

previous slides.

This shift is

positive for the

short term rates

Source : RBI, Data as on 24-May-2019

2009 Phase 2017 Phase

High Quality Portfolio

Data as of June 30, 2019; Past performance may or may not be sustained in future. *AAA, G-Sec and Cash

54

Scheme Name Yield to Maturity

(YTM)

Modified

Duration (Yrs.)

Exposure to

AAA*

securities

ICICI Prudential Money Market Fund 7.12% 0.40 100.0%

ICICI Prudential Savings Fund 7.92% 0.74 85.2%

ICICI Prudential Short Term Fund 8.31% 1.89 82.4%

ICICI Prudential Corporate Bond Fund 8.07% 1.58 100.0%

ICICI Prudential Banking & PSU Debt Fund 7.93% 2.29 82.9%

Play on Carry –

Strong case for investment in Credit Risk Funds

55

Valuations are attractive

Industry Flows are slowing

down

Sentiments are Negative

ICICI Prudential Credit Risk Fund –

Spread Over Repo (Since Inception)

56

Average Spread :

2.9

Data as on 30-June-2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.

Current Spread :

4.91

0

1

2

3

4

5

6

Dec-10

Apr-11

Aug-11

Nov-1

1

Mar-12

Jul-12

Oct-12

Feb-13

May-13

Sep-1

3

Jan-14

Apr-14

Aug-14

Nov-1

4

Mar-15

Jul-15

Oct-15

Feb-16

Jun-16

Sep-1

6

Jan-17

Apr-17

Aug-17

Dec-17

Mar-18

Jul-18

Oct-18

Feb-19

Jun-19

ICICI Prudential Medium Term Bond Fund–

Spread Over Repo (Last 10 Year Trend)

57

Average : 2.13

Data as on 30-June-2019, YTM values taken for the last 10 years. Past Performance may or may not be sustained in future.

Current Spread :

4.36

-2

-1

0

1

2

3

4

5

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

Oct-11

Feb-12

Jun-12

Oct-12

Feb-13

Jun-13

Oct-13

Feb-14

Jun-14

Oct-14

Feb-15

Jun-15

Oct-15

Feb-16

Jun-16

Oct-16

Feb-17

Jun-17

Oct-17

Feb-18

Jun-18

Oct-18

Feb-19

Jun-19

Invest when Flows are Muted

58

Source: MFIE. The funds considered are only Credit Risk Funds as per SEBI classification. Data as of May 31, 2019

90,924

76,195

65,000

70,000

75,000

80,000

85,000

90,000

95,000M

ar-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

Credit Risk Funds Category AUM (In Crs) - Industry Level

Why ICICI Prudential Accrual Funds

59

Investment

Philosophy

Strong Credit

Selection

Process

Robust

Investment

Process

Better Risk

Adjusted

Returns

Investment Philosophy

60

01

02

03

Safety

Liquidity

Returns

The investment team

seeks to achieve Safety,

Liquidity and Returns

(SLR) in order of priority

for managing variety of

our fixed income

schemes.

Robust Investment Process

61

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

Strong Credit Selection Process

62

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

Outlook – Play on Liquidity & Carry

63

We continue to remain sanguine towards the short end

of the yield curve and on spread assets

We may tactically alter duration based on the spread

opportunity available in different market segment

We believe the next rate cut would be data-dependent

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

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 Low Duration

schemes or accrual schemes

such as ICICI Prudential

Credit Risk Fund.

• For those investors who aim

to benefit from volatility we

recommend investment in

ICICI Prudential All Seasons

Bond Fund.

64

Ultra Low Duration

High Duration

2.50 2.42

1

2

3

4

5

6

7

8

9

10

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Ultra Low Duration

Low Duration

Moderate Duration

High Duration

Aggressively in High Duration

Fixed Income Recommendations

65

ICICI Prudential Floating Interest Fund

Cash Management Solution

(aims to benefit from better risk adjusted returns)

ICICI Prudential Ultra Short Term Fund

ICICI Prudential Medium Term Bond Fund

Accrual Schemes

(aims to benefit from capturing yields at elevated levels)

ICICI Prudential Credit Risk Fund

ICICI Prudential All Seasons Bond Fund Dynamic Duration Schemes

( aims to benefit from volatility by actively managing duration)

ICICI Prudential Short Term Fund Low/Short Duration Schemes

(aims to benefit from mitigating interest rate volatility)

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.

66

Our Hybrid Schemes / Fund of Funds 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.

67


ICICI Prudential Asset Allocator Fund An open ended fund of funds scheme investing in equity oriented schemes, debt

oriented schemes and gold ETFs/schemes.

Our Debt Schemes


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

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

68 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.

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.


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.


69

Riskometers

ICICI Prudential Bluechip Fund is suitable for investors who are seeking*:


An open ended equity scheme predominantly investing in large cap stocks.


ICICI Prudential Value Discovery Fund is suitable for investors who are seeking*:


An open ended equity scheme following a value investment strategy


ICICI Prudential Large & Mid Cap Fund is suitable for investors who are seeking*:


An open ended equity scheme investing in both largecap and mid cap stocks


70

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


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


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.


71

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.


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


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.


72

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


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


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.


73

Riskometers

ICICI Prudential India Opportunities Fund (The scheme is suitable for investors who are seeking*)


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.

74

ICICI Prudential Equity Savings Fund is suitable for investors who are seeking*:


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.


ICICI Prudential Multicap Fund is suitable for investors who are seeking*:


An open ended equity scheme investing across largecap, mid cap and small cap stocks.


Riskometers

ICICI Prudential US Bluechip Equity Fund is suitable for investors who are seeking*:


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


75

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


Riskometers

76

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


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


•Long Term wealth creation

•An open ended fund of funds scheme investing in equity oriented schemes, debt oriented schemes and gold ETF/schemes.

*Investors should consult their financial advisors if in doubt about whether the product is suitable for 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*:

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.

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.

77