Axis Banking & PSU Debt Fund (An open ended debt scheme predominantly investing in debt instruments of Banks, Public Sector Undertakings & Public Financial Institutions) May 2018
Yield Stark shift in yield curve Elevated spreads such levels are usually seen in rate hike scenarios 8.70% Inflation Flat curve 8.20% +100 bps shift in the curve 1-3 AAA Spreads (+200 bps) are at 2013 levels (rate hike period) 7.70% 7.20% Flattening of curve Shorter end of the curve has priced in a lot of negatives and a couple of rate hikes Growth Steep curve Steep curve 6.70% 1 yr 2 yr 3 yr 5 yr 10 yr 11th June 2018 (current) 7-Dec-17 (5 months ago) 7-Sep-17 (8 months ago) Source: Reuters. Data as on 11 th June 2018 2
In lac crs Attractive valuations & ample liquidity (Bps) 300 250 200 Spreads are at 3 year high * Rate hike Rate cut Stable rates Spread over 220 bps 10 8 6 Liquidity expected to be in neutral to surplus zone Liquidity (LAF including MSS) 150 4 100 50 3 year AAA spread over Repo 0 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 2 0-2 -4 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Source: Bloomberg, Data as on May 2018. * Data as on 7 th June 2018 3
RBI Policy & Market View Policy Action Reverse Repo Under LAF raised to 6.25% Further rate hikes in light of the current fiscal position and concerns over inflation likely Long duration bonds may face headwinds stemming from Valuation of State Government Securities Increase in Liquidity Coverage Ratio (LCR) carve-out from Statutory Liquidity Ratio (SLR) the increasing interest rate scenario On a risk reward basis, the short end of the curve remains attractive Stay invested in short to medium term strategies Source: RBI 2 nd Bi Monthly Policy Review FY 2018-19, Axis MF Research 4
What we propose in such an environment Roll down the yield curve Rate scenario Curve Normal Curve Rate Cut Stable Rates Rate Hike Constant Maturity Strategy Constant Maturity Strategy Reasons for a strategy to work Opportunity for capital reinvestment Potential gain from mark to market Flat Curve Roll Down Strategy Roll Down Strategy Helps you take advantage of the shape of the yield curve Opportunity to earn reasonable yield with relatively lower volatility We expect stable rates for most part of the year and might expect some rate hikes in the FY 19 owing to: Positive liquidity Attractive valuations Short end of the curve seems to have priced in the negatives Source: Axis AMC Internal Analysis. Current strategy may or may not continue. Above strategy is at the discretion of fund manager and subject to change without notice. 5
Comparative - Open ended / Close ended Open ended Close ended Portfolio Strategy 3 year, AAA roll-down strategy 3 year FMP Liquidity Highly liquid. (With no exit load) Locked until maturity Portfolio Quality 100% AAA & Equivalent 80AAA + 20 AA Return expectation Based on prevailing rates Based on prevailing rates Source: Axis AMC Internal Analysis. Current strategy may or may not continue. Above strategy is at the discretion of fund manager and subject to change without notice. 6
Scenario analysis : Illustration Assume: 3 year AAA is at 8.50% Considering the change in rate given below is across the yield curve, below are the possible outcomes in various scenarios: Return after 1 year (%) Return after 2 years (%) Return after 3 years (%) +50 bps 7.60% 8.27% 8.49% +25 bps 8.04% 8.38% 8.49% No change 8.48% 8.49% 8.49% -25 bps 8.92% 8.60% 8.49% -50 bps 9.37% 8.71% 8.49% Source: Bloomberg, Axis AMC Internal Analysis, Past performance may or may not be sustained in future. Above numbers are only for illustration purpose. This should not be taken as an indication of the returns that may be generated by the fund and the securities bought by the fund may or may not be held till their respective maturities. 7
Axis Banking & PSU Debt Fund : Positioning Well suited fund to capture roll down opportunity available now Target stable returns with high credit quality and liquidity Take advantage of the shape of the curve in short to medium term segment of the curve 4 year indexation benefit Portfolio characteristics Current* Portfolio quality 100% AAA & Equivalent Average Maturity 3.7 years Modified Duration 3 years YTM 8.51% Source: Bloomberg, Axis AMC Internal Analysis, *Data as on 31st May 2018. Note: Allocation & duration is based on the current market conditions and is subject to changes depending on the fund manager s view of the markets. *The yield to maturity given above is based on the portfolio of funds as on May 31, 2018. This should not be taken as an indication of the returns that may be generated by the fund and the securities bought by the fund may or may not be held till their respective maturities. The calculations are based on the invested corpus. 8
Product Label, Statutory Details and Risk Factors Axis Banking & PSU Debt Fund (An open ended debt scheme predominantly investing in debt instruments of Banks, Public Sector Undertakings & Public Financial Institutions) This product is suitable for investors who are seeking* Regular income over short to medium term Investment in debt and money market instruments issued by Banks, PFIs & PSUs. 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 Limited 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 Limited nor Axis Asset Management Company Limited, 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. 9
Thank You