monthly market outlook august 2019 monthly market outlook ...€¦ · 15 20 25 30 mar-07 dec-08 -10...

Monthly Market Outlook

May 2019

Equity & Fixed Income Outlook

Monthly Market Outlook

August 2019

Global Indices Performance

• UK Markets were up by 2.2%

owing to a weaker currency

against the dollar. A weaker

currency pushes the index up

since it comprises of

international mining and oil

stocks which majorly trade in

US Dollars

• South Korea and Indian markets

ended in negative terrain due to

the on-going trade dispute with

Japan and slowdown concerns

respectively.

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 June 28, 2019 – July 31, 2019. Past performance may or may not be sustained in future

2

2.2

1.2 1.0 0.9 0.9 0.8 0.5

0.2

-0.4 -0.6

-1.5 -1.6 -1.7

-2.7

-4.9 -5.0 -6

-5

-4

-3

-2

-1

0

1

2

3

UK

Japan

US

Europe

Taiw

an

Brazil

In

donesia

Sw

itzerla

nd

France

Sin

gapore

Russia

Chin

a

Germ

any

Hong K

ong

India

South K

orea

Returns (

%)

Returns Performance - July 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 June 28, 2019 – July

31, 2019; YTD – Year To Date. Past performance may or may not be sustained in future. The sectors mentioned in this slide do not constitute any recommendation and ICICI Prudential Mutual Fund may or may not have any future

position in this sectors.

3

• Over the month, IT Services

delivered marginal positive

returns (+0.8%)

• Overall performance across

sectors was negative due to

domestic demand softening

and growth concerns

0.8

-1.1

-2.6

-5.7 -6.0 -6.4 -6.8 -7.6

-8.4 -8.8

-10.6 -10.8

-12.1 -12.6 -12.9

-14.1 -16

-12

-8

-4

0

4

IT

HC

FM

CG

Realt

y

Pow

er

Bankex

Fin

an

ce

Tele

com

Basic

Materia

ls

Energy

Oil &

Gas

CG

Metal

Infra

Auto

CD

Returns (

%)

Returns Performance - July 2019

OUR EQUITY OUTLOOK:

SHORT TERM VOLATILITY TO PREVAIL.

LONG TERM GROWTH STORY REMAINS INTACT.

4

Growth Concerns

5

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

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

BREAKING DOWN GDP NUMBERS

6

GDP Components

7

I = INVESTMENT

NX = NET EXPORTS

C = CONSUMPTION

G = GOVERNMENT SPENDING

GDP = C + I + G + NX

C = Consumption

8

Consumption indicators are currently indicating a slowdown

Source: Morgan Stanley Research. Data as of June 30, 2019.

Parameters

YoY Change (%)

Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19

Consumer Durable Goods Production 2.5 0.9 -3.1 2.2 -0.1 -

Domestic 2-Wheeler Sales -5.2 -4.2 -17.3 -16.4 -6.7 -11.7

Domestic Passenger Vehicle Sales -1.9 -1.1 -3.0 -17.1 -20.5 -17.5

Air Passengers Flown 8.4 4.5 -1.1 -5.4 -0.7 -

Personal Loans 16.9 16.7 16.4 15.7 16.9 -

Petrol Consumption 8.3 12.6 9.2 9.9 13.2 12.7

Rural Wages 4.0 4.0 3.9 3.9 4.2 -

I = Investments

9

Private Projects under implementation are declining

Source: Morgan Stanley Research. Data as of June 30, 2019. YoY – Year-on-Year

0.7

3.7

1.4

-4.4

-5

-4

-3

-2

-1

0

1

2

3

4

5

Oct-1

8

No

v-18

Dec-18

Jan-1

9

Feb-1

9

Mar-19

Apr-19

May-19

Jun-1

9

Private Capex - YoY Change (%)

10 Source: CRISIL. Data as of June 30, 2019

G = Government Spending

6,50,731

7,07,647 7,21,705

68,328 86,988 63,000

-

1,00,000

2,00,000

3,00,000

4,00,000

5,00,000

6,00,000

7,00,000

8,00,000

Government Spending (In Crs)

Total Expenditure (Revenue + Capital) In Crs. Capital Expenditure (In Crs)

Jun-17 Jun-18 Jun-19

Total Government Expenditure growth was marginally higher (2%) on a Year on Year basis while Capital

Expenditure growth declined 27.6% on a Year on Year basis.

11

NX = Net Export

Goods exported as well as imported have declined Year on Year indicating demand softening on global

as well as domestic level

Source: Morgan Stanley Research. Data as of June 30, 2019.

-9.7

-9.1

-15

-10

-5

0

5

10

15

20

25

Oct-18

No

v-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Ju

n-19

Export Numbers - YoY Change (%)

Goods Exported Goods Imported

12

Long Term Growth Triggers

Easy Monetary Policy

The RBI is expected to cut rates to

boost liquidity and subsequently

growth

Indian Market Valuations

Barring few mega caps, most stocks

are reasonably valued. Hence,

making a case for investments from

a long term perspective

Exports

India is poised to benefit from

US-China Trade tension since there is a

gradual shift in exports to the US from

China to India

Demographic Advantage

India has a demographic edge over

other countries and can reap the

benefits of shift in the export share

from China to India in future

13

Long Term Growth Triggers – Exports

Source: Morgan Stanley Research. Data for US Exports as of May 2019. Data for world exports as of April 2019

India has gained market share in the US export market since

Dec-18 (onset of US-China Trade War)

amongst other Asian countries

-3.8%

0.0%

0.0%

0.0%

0.2%

0.3%

0.3%

0.4%

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0%

China

Thailand

Malaysia

Singapore

Korea

Taiwan

India

Vietnam

Share gained/lost by each Asian exporter in the US

imports market

(change as % of total US imports)

Since Dec-18

India has gained significant market share in the world export

market since Dec-18 (onset of US-China Trade War)

amongst other Asian countries

-0.9%

-0.2%

-0.1%

0.0%

-0.1%

0.0%

0.1%

-1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2%

China

Korea

Taiwan

Thailand

Singapore

Vietnam

Malaysia

India

Share gained/lost by each Asian exporter in the world

export market

(change as % of world exports)

Since Dec-18

14

Long Term Growth Triggers –

Easy Monetary Policy

RBI has delivered 75 bps rate cut in CY‟19 and is expected to reduce rates further thereby increasing

liquidity in the system. This would further boost demand and subsequently growth.

6.50

6.25

6.00

5.75

5.20

5.50

5.80

6.10

6.40

6.70

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-1

9

Ju

n-19

Ju

l-19

Repo Rate (%)

Source: CRISIL Research. Data as of July 31, 2019.

15


Demographic Advantage

India‟s working age as a % of China‟s working age is 88%. India has a demographic edge over other

countries and can reap the benefits of shift in the export share from China to India.

0% 1% 2% 2% 2% 4% 5% 7% 7% 8% 8% 10% 14%

18% 21%

88%

0%

20%

40%

60%

80%

100%

Sin

gapore

Hong K

ong

Taiw

an

Mala

ysia

Canada

Korea

Th

ailand

Philip

pin

es

Vie

tnam

Japan

Mex

ico

Russia

Brazil

In

donesia

Unit

ed S

tates

In

dia

India‟s working age as % of China's working age

Source: UBS. As on Dec-18

16


Market cap to GDP

India‟s Market cap to GDP currently stands at 72.5% which is below its historic average of 80.7%.

A reading over 100 indicates that the markets are overvalued

whereas a reading below indicates markets are undervalued

Source: Edelweiss Research. Data as of July 31, 2019

50

60

70

80

90

100

110

120

130

Jul-

09

Jan-10

Jul-

10

Jan-11

Jul-

11

Jan-12

Jul-

12

Jan-13

Jul-

13

Jan-14

Jul-

14

Jan-15

Jul-

15

Jan-16

Jul-

16

Jan-17

Jul-

17

Jan-18

Jul-

18

Jan-19

Jul-

19

(%

)

India Market cap to GDP ratio vis-à-vis 10 year average

Average: 80.7

72.5

Equity Valuations Update:

Indifferent towards

Largecap, Midcap & Smallcap

17

Nifty 50 Valuations & Earnings Growth

18

-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. Past performance may or may not sustain in future

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

to pick-up

Nifty Midcap Valuations

19 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 1

00 P

/B

V

Nifty Midcap 100 Price to Book Value

Nifty Midcap PBV Long Term Average

Post the recent correction in the mid & small cap space (refer subsequent slide), we

recommend Mid and Smallcap allocation in a staggered manner.

Market Cap Analysis

20

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 Jul-19

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

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

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 July 31, 2019

Valuations –

Divergence between Growth and Value Stocks

21 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, 2014-19 (%)

MSCI Growth Index MSCI Value Index

22

Nifty Earnings Yield and Bond Yield

Source: Kotak Research. Data as of July 31, 2019

The gap between equity and bond yields have narrowed owing to

a large decline in domestic bond yields and due to correction in equity markets

(4.0)

(3.0)

(2.0)

(1.0)

-

1.0

2.0

3.0

4.0

5.0

6.0

4

5

6

7

8

9

10

11

12

Jul-

04

Jul-

05

Jul-

06

Jul-

07

Jul-

08

Jul-

09

Jul-

10

Jul-

11

Jul-

12

Jul-

13

Jul-

14

Jul-

15

Jul-

16

Jul-

17

Jul-

18

Jul-

19

Yie

ld G

ap (

%)

Earnin

gs Y

ield

& I

ndia

10

Yr G

-S

ec (

%)

Nifty earnings yield and bond yield (%)

Earnings yields (%) India 10-y G-Sec yields (%)Yield Gap (%)

Case for Long Term Investing &

Managing Volatility

23

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 which may 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 may ensure long term

growth story remains intact Reforms

Implementation

Asset Allocation

SIP for Wealth Creation

Outlook – Asset Allocation, Value &

Special Situations Theme

24

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 reasonable

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

25

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%

The asset allocation and investment strategy will be as per the Scheme Information Document, *These schemes 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

Asset Allocator Fund*^

Net Equity Level*:

0-100%

Fund of

Funds

Debt Taxation Debt Taxation Equity Taxation

ICICI Prudential Asset Allocator Fund#

*On change in allocation by the scheme. For more details on tax please consult with your tax advisor. 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. $ The portfolio is as on July 31, 2019. The asset allocation and investment strategy will be as per Scheme Information Document.

(# 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

26

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

The Right Allocation is not only dependent on Equity Valuation, also considers the opportunities that are available in Debt Market.

Allocation between asset classes

• The Scheme will be actively managed by Fund Managers having expertise of equity and debt markets.

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

Equity Allocation$

ICICI Prudential Large &

Midcap Fund

Debt Allocation$

ICICI Prudential All Seasons Bond Fund

+

ICICI Prudential Floating

Interest Fund

ICICI Prudential Asset Allocator Fund Strategy

27

An In house Market Valuation Model allows “Buying Low and Selling High” while keeping human emotions aside

EQUITY / DEBT

VALUATION

GOES UP

REDUCE

EQUITY / DEBT

EXPOSURE

EQUITY / DEBT

VALUATION

COMES DOWN

INCREASE

EQUITY / DEBT

EXPOSURE

The asset allocation and investment strategy will be as per Scheme Information Document.

ICICI Prudential Asset Allocator Fund –

Exposure during Various Market Cycles

28

The model exhibits the principles of “Buy Low, Sell High” by increasing equity exposures when markets have fallen and vice-versa

In house equity valuation index model has been used for calculation purpose which is being used for managing ICICI Prudential Asset Allocator fund & from 4th

feb 2019 actual fund NAV has been taken Past performance may or may

not sustain in future. Source: MFIE. The above allocation is for understanding the in-house allocation model. The asset allocation and investment strategy will be as per Scheme Information Document. The returns are absolute returns.

Period considered: March 31, 2010 to July 31, 2019. The performance of the model does not represent the performance of the scheme. The performance of the scheme is benchmarked to the Total Return variant of the Index.

20509

15455

18620

29183

23002

38645

10%

81%

70%

26%

63%

12% 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10000

15000

20000

25000

30000

35000

40000

Mar-10

Jul-

11

Nov-12

Mar-14

Jul-

15

Nov-16

Mar-18

Jul-

19

Sensex (LHS) Equity Level (%) (RHS)

Schemes to benefit from Value & Special

Situations Theme

29

Fund of

Funds

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

30

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

31

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 asset allocation and 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


Schemes to benefit from long term growth story

ICICI Prudential Smallcap Fund

32 The asset allocation and investment strategy of the scheme will be as per the Scheme Information Document

Robust Investment

Process

Portfolio Construction

and Investment Strategy

Large & Midcap Exposure:

10 – 30% for tactical

allocation & liquidity purpose

Solid Research and

Screening Process

No. of Stocks: 40 – 65

Smallcap Exposure: 70 – 90%

of portfolio

Young and agile

(AUM as on July 31,

2019 is Rs. 383.98 Crs)

ICICI Prudential Multicap Fund

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

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

34

ICICI Prudential

India Opportunities

Fund

(An open ended equity

scheme following

special situations theme)

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

Multicap Fund


scheme investing

across large cap, mid

cap and small cap

stocks)

Equity Valuation Index

35

Equity valuations show that

the market valuations are in a

neutral zone where investors

are recommended to invest in

Asset Allocation / Balanced

Advantage 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

105.39

50

70

90

110

130

150

170

Jul-

06

Jul-

07

Jul-

08

Jul-

09

Jul-

10

Jul-

11

Jul-

12

Jul-

13

Jul-

14

Jul-

15

Jul-

16

Jul-

17

Jul-

18

Jul-

19

Invest in Equities

Aggressively invest in Equities

Neutral

Incremental Money to Debt

Book Partial Profits

OUR FIXED INCOME OUTLOOK:

PLAY ON LIQUIDITY & CARRY

36

Current situation in the Fixed Income Space

37

Source: CRISIL Research; FY refers to fiscal year ends Apr - Mar; *Inflation (CPI) is for the month of June-19, Currency, Crude Oil prices as on July 31 2019 , Forex Reserves as on 12-Jul-2019, US 10Yr G-

sec(%) as on July 31, 2019; CAD is for FY 19; FD Estimates from Budget Documents for FY20; GDP is for Q4FY19.

Fiscal Year Ends FY13 FY14 FY15 FY16 FY17 FY18 FY19

Inflation (CPI%) 10.2 9.5 5.9 4.9 3.8 3.6 3.2*

Current Account Deficit (%

GDP) -4.8 -1.7 -1.3 -1.1 -0.6 -1.9 -2.1

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

Crude Oil (USD/barrel) 109 107 53 39 60 57.8 65.2*

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

Forex Reserves (USD bn) 292 304 342 356 370 424 429*

Currency (USD/INR) 54.3 59.9 62.5 66.3 64.9 64.5 68.8*

US 10YR G-sec (%) 1.85 2.72 1.92 1.77 2.39 2.78 2.1*

Current situation in the Fixed Income Space

38

RBI delivered 75 bps rate cut in CY’19

Despite rate cuts & surplus liquidity, corporate bond spreads remain high

Rate Transmission channel are broken (Credit concern + NBFC + Crowding out)

MCLR continue to remain elevated, further hampering the rate transmission

High small savings rate, major deterrent for banks to reduce deposit rate

NBFC – Non Banking Financial Corporation, MCLR - Marginal Cost of Funds Lending Rate, Data Source : RBI

Transmission channels are broken –

Corporate bond spread

39

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

Source : CRISIL Research, Data as on July 31, 2019

6

7

8

9

10

11

12

Jul-

12

Jan-13

Jul-

13

Jan-14

Jul-

14

Jan-15

Jul-

15

Jan-16

Jul-

16

Jan-17

Jul-

17

Jan-18

Jul-

18

Jan-19

Jul-

19

(%

)

Corporate Bond Rates

AAA_3 Year AA_3 Year Repo Rate

Our Outlook

40

GLOBAL

Global environment remains supportive of lower rates with oil prices ~$65 as on July end

Uncertainty remains on account of trade tensions, pushing growth expectations lower

Expect major central banks to be dovish

DOMESTIC

On domestic front, economy going through consumption and investment slowdown,

Expect RBI to cut rates by ~50 bps further in 2019 with surplus liquidity

Expect steepening of yield curve in the coming quarters

In light of this, we are positive on short/medium corporate bond & accrual funds, which seem

attractive on the risk reward benefit.

Triggers to our Outlook

41

Positive Negative

Global Rates dovish Fiscal Deficit

Crude Oil ~$65 as on July end Trade & Current Account Deficit

Domestic Growth slowdown Overvalued INR

Inflation below RBI target

RBI rate cuts with surplus liquidity

Fiscal Deficit

42 Source : RBI, JP Morgan Research, UDAY – Ujjwal DISCOM Assurance Yojana, RE – Revised Estimates

Public Sector Borrowing

43 FY 19: From January 19 till July 31, 2019

Fiscal Target looks Challenging

44

11.1%

13.4% 13.4% 14.3%

6.9%

25.2%

20.5% 20.5%

21.9%

11.8%

0%

5%

10%

15%

20%

25%

30%

Tax Revenue Total Receipts Total Expenditure Revenue Expenditure Capital Expenditure

FY 20/ FY19 RE FY 20/ FY19 Actuals

Source: RBI, RE – Revised Estimates. Actuals as on July 31, 2019

Current Account Balance

45

Source: CRISIL Research; Data for CAD is as on 31st Mar, 2019. GDP – Gross Domestic Product. CAD – Current Account Deficiti

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

9(5.50)

(4.50)

(3.50)

(2.50)

(1.50)

(0.50)

0.50

1.50

2.50

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

10

Year G

-S

ec

Current A

cco

unt D

efic

it as a

% t

o G

DP

Current Account Deficit Vs 10 Yr G-Sec

CAD 10 Yr G-Sec (RHS)

Trade Balance

46

Source: CRISIL Research; Data for Trade Balance is as on 30th

June 2019

5

6

7

8

9

10-22

-18

-14

-10

-6

-2

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19

India

10 Y

ear S

-S

ec

Trade B

ala

nce (

US

D b

n)

Trade Balance (In USD Billions)

India Trade balance (USD bn) India 10 Year G-Sec Yield (%), RHS

Inflation

47

RBI‟s decision to hold rates in Dec policy as inflation remained below its target of 4% helped Government bonds,

despite concerns about liquidity in the system

-2%

0%

2%

4%

6%

8%

-2%

0%

2%

4%

6%

8%

No

v-17

Dec-1

7

Jan

-1

8

Feb-18

Mar-18

Apr-18

May-1

8

Jun

-1

8

Jul-

18

Au

g-18

Sep-1

8

Oct-18

No

v-18

Dec-1

8

Jan

-1

9

Feb-19

Mar-19

Apr-19

May-1

9

Jun

-1

9

Core Inflation (%) Food inflation (%) Fuel and light (%) Headline Inflation (%)

Source: CRISIL Research; Inflation figure as of June 2019

Events to watch out for

48

Short term triggers:

Report on RBI reserves

RBI report on liquidity framework

Uncertainty on foreign currency borrowing by the Government of India

US Fed Stance on monetary policy

Segment of yield curve which stands to benefit

49

• As RBI repo rate moves down further, yield curve tends to steepen, making short

end of yield curve attractive with better margin of safety

• Corporate bond spreads are at elevated levels, we expect compression of

corporate bond spreads to happen

• Liquidity conditions improving is positive more for short end space as compared to

the longer end space.

• So, the play is on liquidity carry spreads, which makes us positive on the short end

space

Spread Compression in Corporate Bonds

50

5.5

6

6.5

7

7.5

8

8.5

9

1 Year 3 Year 5 Year 10 Year

AAA AA Gsec Repo

S

P

R

E

A

D

1-3 Year segment most attractive

in the corporate bond space Avg.

225 bps

Avg.

166 bps

Avg. 49

bps

Corporate Bond spread over Repo at an elevated levels. Going forward, we expect spread to compress

Source: CRISIL Research; Data as of July 31, 2019

High Quality Portfolio

Data as of July 31, 2019; Past performance may or may not be sustained in future. *AAA, G-Sec and Cash

51

Scheme Name Yield to Maturity

(YTM)

Modified

Duration (Yrs.)

Exposure to

AAA*

securities

ICICI Prudential Money Market Fund 6.39% 0.37 100.0%

ICICI Prudential Savings Fund 7.28% 0.76 85.5%

ICICI Prudential Short Term Fund 7.95% 1.89 81.2%

ICICI Prudential Corporate Bond Fund 7.37% 1.87 100.0%

ICICI Prudential Banking & PSU Debt Fund 7.47% 2.50 84.3%

Play on Carry –

Strong case for investment in Credit Risk Funds

52

Valuations are attractive

Industry Flows are slowing

down

Sentiments are Negative

ICICI Prudential Credit Risk Fund –

Spread Over Repo (Since Inception)

53 Data as on July 31, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.

Current Spread :

4.91

Average Spread :

2.9

Current Spread :

4.7

0

1

2

3

4

5

6

Jan

-1

1

May-1

1

Sep-1

1

Dec-1

1

Apr-12

Au

g-12

Nov-12

Mar-13

Jun

-1

3

Oct-13

Feb-14

May-1

4

Sep-1

4

Dec-1

4

Apr-15

Au

g-15

Nov-15

Mar-16

Jul-

16

Oct-16

Feb-17

May-1

7

Sep-1

7

Jan

-1

8

Apr-18

Au

g-18

Nov-18

Mar-19

Jul-

19

Yie

ld S

preads (%

)

ICICI Prudential Medium Term Bond Fund–

Spread Over Repo (Last 10 Year Trend)

54

Data as on July 31, 2019. YTM values taken for the last 10 years. Past Performance may or may not be sustained in future.

Average : 2.13

Current Spread

: 4.16

-3

-2

-1

0

1

2

3

4

5

Jul-

09

Nov-09

Mar-10

Jul-

10

Nov-10

Mar-11

Jul-

11

Nov-11

Mar-12

Jul-

12

Nov-12

Mar-13

Jul-

13

Nov-13

Mar-14

Jul-

14

Nov-14

Mar-15

Jul-

15

Nov-15

Mar-16

Jul-

16

Nov-16

Mar-17

Jul-

17

Nov-17

Mar-18

Jul-

18

Nov-18

Mar-19

Jul-

19

Yie

ld S

preads (%

)

Invest when Flows are Muted

55

Source: MFIE. The funds considered are only Credit Risk Funds as per SEBI classification. Data as of June 30, 2019

90,924

76,195

73,127

0

20,000

40,000

60,000

80,000

1,00,000M

ar-18

Apr-18

May-18

Jun-18

Ju

l-1

8

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

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

Why ICICI Prudential Accrual Funds

56

Investment

Philosophy

Strong Credit

Selection

Process

Robust

Investment

Process

Better Risk

Adjusted

Returns

Investment Philosophy

57

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

58

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

59

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

60

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 there would be rate cuts by the RBI in the

upcoming policy meets

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 Short Duration

schemes (1-3 yrs) or accrual

schemes such as ICICI

Prudential Credit Risk Fund

and ICICI Prudential Medium

Term Bond Fund.

• For those investors who aim

to benefit from volatility we

recommend investment in

ICICI Prudential All Seasons

Bond Fund.

61

Ultra Low Duration

High Duration

2.50

Ultra Low Duration

Low Duration

Moderate Duration

High Duration

Aggressively in High Duration

2.86

1

2

3

4

5

6

7

8

9

10

Jul-

16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-

17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-

18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-

19

Ultra Low Duration

Low Duration

Moderate Duration

High Duration

Aggressively in

High Duration

Fixed Income Recommendations

62

ICICI Prudential Floating Interest Fund

Cash Management Solution

(which benefits from better risk adjusted returns)

ICICI Prudential Ultra Short Term Fund

ICICI Prudential Medium Term Bond Fund

Accrual Schemes

(which benefits from capturing yields at elevated levels)

ICICI Prudential Credit Risk Fund

ICICI Prudential All Seasons Bond Fund Dynamic Duration Schemes

( which benefits from volatility by actively managing duration)

ICICI Prudential Short Term Fund Low/Short Duration Schemes

(which benefits 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.

63

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.

64


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

oriented schemes and gold ETFs/schemes.

*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.

Our Debt Schemes

65


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 and Municipal Bonds

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

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.


66

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


67

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.


68

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.


69

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.


70

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.

71

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


72

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

73

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*:

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.

74