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Fixed income markets in India have shown different hues over the last 18 months – from a declining trend to a pause mode and now potentially a rising mode. In a market where seasons change so fast and so sharply, an all weather product is what perhaps serves investors best. Manish takes us through how he is navigating the ICICI Prudential Long Term Plan to make the most of different conditions that debt markets are throwing up, to deliver healthy returns through different phases of the cycle. WF: How do you read the macro situation and what impact is this likely to have on bond yields? How are you aligning your Long Term Plan’s portfolio strategy with your outlook on bond markets? Manish: In terms of macro situation, the economic recovery is at a very nascent stage. Even though credit growth has improved, current account deficit has expanded and oil prices have seen a steep move upwards, both of which are not very positive for the economy. Owing to these factors, the in-house model followed to take duration calls is indicating a neutral duration. But given the fact that yields have climbed up in line with the economic variables, we are maintaining a moderate duration of around 3.5-4 years at this point, which will be reflective in our portfolios. In October 2017, the model was indicating that economic situation has changed and therefore the duration of the fund needs to be cut down. As a result, in October-November the duration was cut down from 6 years to 3.5 years because the model suggested a neutral duration. Further, we have tried to improve the carry in the AAA and AA space of the portfolio. The idea is to have a better carry compared to what we used to have when the duration was high. WF: In what way has the recent development in PSU banks impacted the bond markets? Manish: There has not been any direct impact on the bond markets in any way. WF: In what way does volatility in US bond markets impact the Indian Bond Markets? Manish: The impact of the US bond markets on the Indian debt market is largely sentimental in nature. The major difference between India and US market is that US is in a matured economic cycle. Therefore the up move seen in bond yields is in sync with their economic cycle. In India, we are at a nascent stage when it comes to economic recovery cycle. In light of this, the movement seen in Indian bond yields has been much sharper than seen in the US market. Thus, from a valuation point, market is ¬¬attractive (trading opportunity), but from a cyclical perspective the cycle is not very conducive for the bond market. There may be a point, going forward, where the US Bond yields may move further up, but Indian Bond yields may not react, as they have already risen too much. WF: Why do you believe ICICI Prudential Long Term Plan is an all-weather fund? Manish: It is an all-weather fund because of three reasons. First, the model followed provides direction regarding economic cycles, thereby aiding the process of taking a call on duration for the fund. Second, the model provides a valuation strategy, where cheap valuations usually lead to higher duration and higher valuations lead to lower duration, which essentially limits the risk for investors as the fund is ‘buying low and selling high.’ Third, the fund runs different strategies in different market scenarios. In a situation where the duration is high, the fund uses government securities to capture the capital gains. In a low duration strategy, it focuses on higher accruals, to increase the carry on the portfolio. In effect, the fund is designed to invest based on market and economic conditions, with a model-oriented discipline. Therefore, it is an all-weather fund, wherein an investor can invest at any point in time and in any given market conditions, for an investment horizon of at least three years.
In-House Current Account Model Can Provide Reasonable Returns In All Kinds Of Market Conditions
CAD: Current Account Deficit. GDP: Gross Domestic Product, G-Sec: Government Security. Data as of December 2016. Past performance may or may not sustain in future. The information contained herein is solely for private circulation for reading/understanding of registered Advisors/ Distributors/ referral agents of ICICI Prudential Asset Management Company and should not be circulated to investors/prospective investors.
Potential to Generate Reasonable Returns in all kinds of Market Scenarios
Data as of January 31, 2018; Past performance may or may not sustain in future. The information contained herein is solely for private circulation for reading/understanding of registered Advisors/ Distributors/ referral agents of ICICI Prudential Asset Management Company and should not be circulated to investors/prospective investors.
An all-weather scheme
Source: Internal; G-Sec –10-year Government Securities; As of January 31, 2018; Past performance may or may not sustain in future. Past performance may or may not sustain in future. The information contained herein is solely for private circulation for reading/understanding of registered Advisors/ Distributors/ referral agents of ICICI Prudential Asset Management Company and should not be circulated to investors/prospective investors. WF: How should distributors differentiate between ICICI Prudential Regular Savings Fund and ICICI Prudential Long-term Plan? Manish: ICICI Prudential Regular Savings Fund is a credit fund which invests in well researched credit ideas and holds a portfolio comprising of higher yields, thereby aiming to generate returns from higher accruals in the portfolio. Looking at the current economic recovery cycle, credit space seems very attractive as the credit cycle is likely to improve from hereon. Given that, economic activity is likely to pick pace, more borrowers will come around thereby improving credit spreads. All this augurs well for credit funds. As for ICICI Prudential Long Term Plan, it is season agnostic, wherein an investor can invest from a long term; preferably from a 5-10 year perspective can opt to invest in this fund. WF: Why should one consider investing in ICICI Prudential Long Term Plan in the current market? Manish: For an investor looking to make the most of the myriad opportunities in debt market, ICICI Prudential Long Term Plan is an interesting investment opportunity one can consider.
Data as of January 31, 2018. Investments made by the Scheme will be subject to the terms and conditions specified in the Scheme Information Document. Portfolio of the Scheme is subject to change depending on market conditions and investment opportunities available.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The information contained herein is solely for private circulation for reading/understanding of registered Advisors/ Distributors and should not be circulated to investors/prospective investors. All data/information used in the preparation of this communication is specific to a time and may or may not be relevant in future post issuance of this communication. ICICI Prudential Asset Management Company Limited (the AMC) takes no responsibility of updating any data/information in this communication from time to time. The AMC (including its affiliates), ICICI Prudential Mutual Fund (the Fund), ICICI Prudential Trust Limited (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 communication in any manner. Nothing contained in this communication shall be construed to be an investment advice or an assurance of the benefits of investing in the any of the Schemes of the Fund. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Share this article |
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