1 st Bi-Monthly Monetary Policy Review, Kotak Mutual Fund Update as on 4 th April

Transcription

1 1 st Bi-Monthly Monetary Policy Review, Kotak Mutual Fund Update as on 4 th April

2 Monetary Meas ures: Key Rates Meas ures CRR Reverse Repo rate Unchanged at 4.00% (incremental CRR withdrawn) revised to 6.0% (affixed at 25 bps below repo) Repo Rate Unchanged at 6.25% MSF Rate Revised to 6.50% (at 25 bps spread over repo) Bank Rate Revised to 6.50% (at 25 bps spread over repo) SLR At 20.50% 2 Source: RBI

3 Monetary Policy Committee (MPC) - Balanced Structure - transition in Power MPC is a six-member panel which determines the policy interest rate It features three members from the RBI (Governor Urjit Patel, Deputy Governor R Gandhi, & RBI nominee Michael Patra) Another three independent members selected by the Government are Chetan Ghate, Pami Dua, Ravindra H Dholakia(All academicians of repute). MPC will meet 4 times a year to decide on monetary policy by a majority vote If there s a tie between votes, the RBI governor gets the deciding vote Government and RBI members on the MPC brings accountability Government would have to restrain deficit & RBI would need to manage inflation 3 3

4 Interpreting the Central Banker s S tance Overall, the MPC s considered judgement call to wait out the unravelling of the transitory effects of demonetisation has been broadly borne out. While these effects are still playing out, they are distinctly on the wane and should fade away by the Q4 of The effects of Demonetisation may be over by end of FY17 While inflation has ticked up in its latest reading, its path through appears uneven and challenged by upside risks and unfavourable base effects towards the second half of the year The risk of Inflation is likely to rise from current levels in this context that greater clarity about liquidity management is being provided, even as surplus liquidity is being steadily drained out. Major emphasis of this policy was on liquidity management Along with rebalancing liquidity conditions, it will be the Reserve Bank s endeavour to put the resolution of banks stressed assets on a firm footing and create congenial conditions for bank credit to revive and flow to productive sectors of the economy. RBI would continue to actively manage liquidity 4 4

5 Why RBI May Have Kept the Rates Unchanged? Inflation forecast Growth Outlook US Federal Reserve Action RBI seems to be targeting the medium term CPI objective of 4%. The Central banker is expecting an uptick in inflation by middle of FY18 While growth in FY17 may moderate, RBI expects the GVA growth rate for FY18 to recover sharply to 7.4%. (Kotak MF estimates FY18E growth of 7%) The central banker is expecting normalisation in interest rates of major economies(read US Fed). For this reason, RBI wants to maintain policy scope and stance to take corrective measures when necessary 5

6 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 CPI marginally rises to 3.65% in Feb % Source: MOSPI 10.00% 8.00% CPI Core CPI 6.00% 4.8% 4.00% 2.00% 3.65% 0.00% The CPI inflation increased for the first time in seven months to 3.65% in February The sequential pickup in the CPI inflation in February 2017 was led by an increase in the inflation for food & beverages and fuel & light. Encouragingly, the generally sticky core-cpi inflation eased to 4.8% in February 2017 from 5.0% in January The moderation in core CPI inflation was fairly broad-based, with even services such as health and education displaying a downtrend in inflation On an MoM basis, the core-cpi sub-index increased by 0.4% in February 2017, lower than the rise of 0.5% in January 2017 and 0.6% in February Notably, the core-cpi inflation exceeded headline CPI inflation for the sixth month in a row, although the wedge between the two narrowed significantly in February

7 DEBT OUTLOOK The monetary policy stance towards interest rates has largely remained unchanged. The changes in the reverse repo and the MSF rates were largely guided by the objective of normalising the rates in the money market where the near term tbills had begun to trade below the reverse repo rate. The Central banker foresees the CPI inflation at around 5% by H2-FY18. This is on account of the uncertainty regarding monsoon, the inflationary impact from 7 th pay commission allowances pay-out and the one-off effects from GST. The central banker also foresees deficit risk from farm loan waivers. The central banker therefore is in wait and watch mode as far as repo rates are concerned. RBI is keen to revive the credit flow to the commercial sector by addressing the issue of stressed assets in the banking system. We believe that risk-reward tradeoff presently favours investment in the Ultra-short term and in the accrual category. Opportunistic allocation in the duration funds can also be made in cases of yield spikes. With equities expected to do well over the 3 year plus horizon, investors with slightly higher risk appetite can also look at investing in MIP category of funds. 7 7

8 KEY RECOMMENDATIONS Segment Scheme Rationale Accrual Play Kotak Income Opportunities Fund / Kotak Medium Term Fund Investment for higher accrual Asset Allocation Kotak Monthly Income Plan Investment for asset allocation Short Term Parking of Funds Kotak Treasury Advantage Fund / Kotak Low Duration Fund Kotak Equity Arbitrage Fund Higher post tax return Duration Play Kotak Mahindra Bond Scheme Kotak Bond Short Term/ Kotak Flexi Debt Scheme Investment for longer maturities Investment for shorter maturities 8

9 Kotak Credit Process Mitigating Risk through Robust Practices Qualitative and Quantitative Assessment of Business Issue Security & Structure Documented Process & Learning Loop Credit Risk Management Diversification Monitoring Portfolio composition addresses liquidity and concentration risk

10 Robust Credit Evaluation Process at Kotak MF % of portfolio allocation & size of issue Details of past transaction by Kotak Group with the borrower Nature of business Source of operating cash flows of all relevant entities Purpose/end-use of borrowing Quality of Management and Corporate Governance Portfolio Risk Analysis Issuer Analysis Independent rating if available Portfolio concentration measures Vintage-wise delinquencies and flow through rates & resultant probability of default Insurance, escrow amounts and recourse level available under different scenarios Pool Asset Analysis Issue Analysis Adequacy of operating cash flows providing cover on debt Extent & structure of existing debt Structure of proposed borrowing and Security Yield curve & ALM mis-match risks Detailed financial model

11 STORY IN ACCRUALS Accruals funds generate performance by purchasing high yielding assets Corporates have alternative in NBFCs for funding. But such corporates would need to provide high collateral in keeping with the RBI guidelines regarding loan against shares. Thus, creditable and quality corporates has to shell out high rates to attract capital Retail Investors can consider accrual funds like Kotak Income Opportunities / Kotak Medium term to gain from the potential high yields in the market

12 PRODUCT LABELING Name of the Scheme This product is suitable for investors who are seeking* Riskometer Kotak Mahindra 50 Unit Scheme Kotak Select Focus Fund Kotak Emerging Equity Scheme Kotak Balance Fund Kotak Opportunities Kotak Gilt Investment Kotak Bond Kotak Medium Term Fund Kotak Low Duration Fund (Formerly known as PineBridge India Short Term Fund) long term capital growth Investment in portfolio of predominantly equity & equity related securities long term capital growth Investment in portfolio of predominantly equity & equity related securities generally focused on a few selected sectors long term capital growth Investment in equity & equity related securities predominantly in mid & small cap companies. Long term capital growth Investment in equity & equity related securities balanced with income generation by investing in debt & money market instruments long term capital growth Investment in portfolio of predominantly equity & equity related securities income over a long investment horizon Investments in sovereign securities issued by the Central and/or State Government(s) and / or reverse repos in such securities. income over a long investment horizon investment in debt & money market securities Income over a medium term investment horizon Investment in debt, government securities & money market instruments with a portfolio weighted average maturity between 3-7 years Regular Income over short term Income by focusing on low duration securities 12 * Investors should consult their financial advisers if in doubt about whether the product is suitable for them

13 PRODUCT LABELING Name of the Scheme This product is suitable for investors who are seeking* Riskometer Kotak Equity Arbitrage Scheme Kotak Income Opportunities Fund income from arbitrage opportunities in the equity market investment in arbitrage opportunities in the cash & derivatives segment of the equity market. Income over a medium term investment horizon Investment in debt & money market securities Kotak Treasury Advantage Scheme Income over a short term investment horizon investment in debt & money market securities Kotak Infrastructure & Economic Reform Fund (formerly known as PineBridge Infrastructure & Economic Reform Fund ) long term capital growth long term capital appreciation by investing in equity and equity related instruments of companies contributing to infrastructure and economic development of India Kotak Tax saver Fund Long term capital growth with a 3 year lock in Investment in portfolio of predominantly equity & equity related securities * Investors should consult their financial advisers if in doubt about whether the product is suitable for them 13

14 PRODUCT LABELING Name of the Scheme This product is suitable for investors who are seeking* Riskometer Kotak Monthly Income Plan income & capital growth over a long term horizon investment in a portfolio of debt instruments with a moderate exposure in equity & equity related instruments Kotak Banking and PSU Debt Fund income over a short to medium term investment horizon Investment in debt & money market securities of PSUs, Banks & government securities 14

15 Disclaimers & Risk factors The information contained in this (document) is extracted from different public sources. All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication. This is for the information of the person to whom it is provided without any liability whatsoever on the part of Kotak Mahindra Asset Management Co Ltd or any associated companies or any employee thereof.we are not soliciting any action based on this material and is for general information only. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 15