3 dimensional view of Fixed Income Market

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2 3 dimensional view of Fixed Income Market Duration play seems to be over Money market yields are too low post demonetization thanks to excess liquidity Liquidity Duration Accrual Good opportunity to position the portfolio of corporate bonds and money market in the range of 3m-3years with a mix of credits. Current Portfolio Allocation is based on the prevailing market conditions and is subject to changes depending on the fund manager s view of the fixed income markets. 2 2

3 Improved credit environment Improved operating performance of corporates over the last 3 years Better risk-reward ratio as compared to 3-5 years ago Ratings data confirms the improvement in credit quality in the last 2 years Reduced input cost contributed to operating profit margin improvement Reduction of debt leverage Improved debt service ability Hence, big jump in net profit margin Improved spreads for lower rated papers Widening of investible corporate space with companies being upgraded 3

4 Bond markets have seen a significant sell-off yr G-Sec Yield : Last 1 year 7.73% % Feb-17 May-17 Aug-17 Nov-17 Feb-18 Source: Bloomberg. Past performance may or may not be sustained in the future. 4

5 Key Reasons Behind Rising Yields Fiscal uncertainties Bottoming out of inflation Finally uncertainty around fiscal deficit ended with Government announcing additional borrowing of INR crs in dated securities and INR crs in T-bills on account of shortage in tax collections While it remains within the RBI target range, inflation has bottomed out - both at the retail and wholesale level Crude oil prices breaching $60 India being a net importer of oil, rising oil prices can put pressure on twin deficits and feed into inflation Recapitalization of PSU Squeezed liquidity Global rate tightening Recap plan of PSU banks will lead to improvement in credit cycle as it helps to nurse the weak banks' balance sheet. It is therefore a growth positive and hence will reduce pressure on the central bank to cut rates. After several months of sustained surplus liquidity, banking liquidity fell by ~INR 1 trillion. This was mainly on account of GST, OMOs, festive currency outflows and forex intervention by RBI. As growth remains robust across most major global economies, central banks are becoming less dovish at the margin Source: Axis Internal Analysis 5

6 Inflation (%) Inflation has bottomed Going forward, Inflation is likely to hover around the higher end of the RBI target zone on account of Fiscal slippage, Rebound in commodity prices & Revival in economic growth Monetary policy loses credibility on sustained double digit inflation 12% 10% RBI sets glide path for achieving sustained lower inflation New Monetary Policy Framework 8% Initial Target 8% 6% 4% 2% 0% Intermediate Target 6% Formal Inflation Target of 4% +/- 2% onwards Source: Bloomberg, RBI, Axis Internal Analysis. Data as on 31 st Mar

7 Commodity and crude prices are rising Crude, Industrial metals and agri-commodities have largely bounced back sharply. However prices remain well off their highs of the boom-era Rising Brent Crude Brent Crude (US$/Barrel) Average (US$/Barrel) India Crude Basket (US$/Barrel) Dec-14 Dec-15 Dec-16 Dec-17 Source: Bloomberg, Axis Internal Analysis 7

8 Improved corporate profitability offering better spreads Improved credit ratio : 817 upgrades & 434 downgrades in the first half of fiscal 2018 Reason for improvement : Better financial indicators as corporates kept away from capital expenditure given the output gap or substantial headroom in capacity utilization in many sectors Credit Ratio Year AA spreads over G-Sec 0 Jan-15 Jan-16 Jan-17 Jan-18 Source: CRISIL, Bloomberg. Data as on 28th Feb

9 Fund Positioning Open-ended debt scheme primarily investing in corporate debt instruments of 2-4 years maturity Core book (>70%) in corporate debt instruments while 20-30% is managed dynamically based on market conditions Aims to capture higher yields / spread compression in 2-4 year corporate bonds Strategy followed is based on the current market conditions and is subject to changes depending on the fund manager s view of the markets. 9

10 Risk Management Tight Duration Range (3 years) Stringent credit review Control credit risk through diversification and strict limits on issuer weighting based on rating Strategy followed is based on the current market conditions and is subject to changes depending on the fund manager s view of the markets. 10

11 Highly diversified corporate bond portfolio with tight position limits Top 10 Non- AAA exposures (Mar 18) Top 10 sub AAA holdings Rating Total Birla Corporation Limited ICRA AA 2.9% PVR Limited CRISIL AA- 2.4% Hinduja Leyland Finance Limited CARE AA- 2.3% Amri Hospitals Limited BWR A+(SO) 2.2% Bank of Baroda CARE AA 2.2% Renew Power Venture Pvt Limited CARE A+ 2.2% Suhani Trading And Investment Consultants Private Limited BWR A+(SO) 2.2% Piramal Enterprises Limited ICRA AA 2.2% Nirma Limited CRISIL AA 2.0% ECL Finance Limited ICRA AA 1.9% Top 10 Non-AAA constitute 27.4 percent of the portfolio Data is based on the current market conditions and is subject to changes depending on the fund manager s view of the markets. Please refer to the factsheet / visit for full portfolio details of the scheme 11

12 Maturity Profile & Rating Transition Core allocation to short term corporate bonds across credit spectrum in 2-4 year space Reduced exposure to longer dated securities and shift to 1-3 year high rated and months lower rated corporate bonds Rating Mar-17 Mar 18 Target 44% 40% 39% 31-Mar Mar-18 Sovereign / AAA$ 53.7% 40.9% 30-40% 22% 30% 13% AA(+/-) 40.0% 50.0% 50-60% 6% 2% 2% 0% 0% 1% A(+/-) 6.3% 9.1% 10-20% 0-1 years 1-3 years 3-5 years 5-10 years years more than 15 years Strategy followed & Target Range is based on the current market conditions and is subject to changes depending on the fund manager s view of the markets. $AAA & Equivalent includes AAA/A1+-rated papers. 12

13 Upgrades & Downgrades in the portfolio over the last 2 years Upgrades Downgrades Edelweiss Commodities Limited (CRISIL AAto CRISIL AA) Vodafone India (IND AAA to IND AA+) IIFL Finance Limited (CRISIL AA- to CRISIL AA) Tata Power Company Limited (ICRA AA to ICRA AA-) Hinduja Leyland Finance Limited (CARE A+ to CARE AA-) Indiabulls Housing Finance Limited (CRISIL AA+ to CRISIL AAA) Solstice Trust (ICRA A(SO) to ICRA A+(SO)) Source: Axis AMC Internal Analysis 13

14 Performance as on 31 st Mar

15 Annexure for returns of schemes managed by fund manager Please refer next slide for disclaimer 15

16 Disclaimer for performance annexure Please refer next slide for disclaimer 16

17 (5, 31,33, 35) 17

18 Statutory Details and Risk Factors Disclaimer: Past performance may or may not be sustained in the future. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC) Risk Factors: Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Ltd. nor Axis Asset Management Company Ltd., its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Source of Data: Bloomberg, RBI, ACEMF Data as on 31 st Mar 2018 unless specified differently