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Q India Fixed Income
India local currency sovereign & quasi-sovereign strategy [
Quantum Advisors Pvt. Ltd Page 1
Report for the month ended April 2017
Table 1: Performance of the Q India Fixed Income composite (Composite)
1. The above composite returns are returns of the Q India Fixed Income Composite of Quantum Advisors Private Ltd (QAS
Composite) for the period 18-February-2015 to 28-April -2017) linked with the returns of Q India Fixed Income Composite
of QIEF Management LLC, an affiliate of QAS (QIEF Composite) for the period (24 August 2010 to 17 February 2015),
both of which have been managed under the Q India Fixed Income local currency sovereign & quasi sovereign strategy (Q
India fixed income strategy).
2. The QAS Composite return represents the performance returns of institutional share class of the UCITS fund managed by
QAS on a discretionary basis (the UCITS Fund) during the current period, and the QIEF Composite return represents the
performance returns of the UCITS Fund‟s predecessor (a Mauritius fund that is now a wholly owned subsidiary of the
UCITS Fund, following a re-structuring completed in February 2015) managed by QIEF on a discretionary basis with QAS
as the non-discretionary Advisor, during the prior period.
3. The above returns of the Q India Fixed Income composite returns are net of fees and expenses and reflect the reinvestment
of interest and other earnings. However, it should be noted that the fees and expenses of the UCITS Fund during the current
period have been, and are expected to be, generally higher than the fees and expenses of the UCITS Fund‟s predecessor
during the prior period.
4. The primary benchmark for the Q India Fixed Income Composite is the J P Morgan India Government Bond Index.(*) and
the secondary benchmark is Crisil Composite Bond Fund Index (#)
5. The JP Morgan Indices are globally used by investors for performance benchmarking. The JP Morgan India Government
Bond Index explains in part the India fixed income strategy of investing in Government bonds and PSU Bonds. The CRISIL
composite bond fund index is an index of Government, PSU bonds and private corporate bonds. This index is widely used by
domestic Indian funds to benchmark its bond funds. As the Q India Fixed Income strategy is a mix of government and PSU
bonds, we use both the above mentioned benchmarks. Neither of the indices completely represents the strategy and the
underlying portfolio can be different than the index constituents.
6. The performance shown above does not guarantee future results and future performance can be lower or higher than the
data quoted.
7. The NAV of the constituent of the composite is declared in USD terms. For the purpose of computing performance returns
of the constituent of the composite in INR terms the USD NAV has been translated into INR. The conversion rate used for
the said purpose was sourced from the Reserve Bank of India website till July 31, 2012. The source for the same was
changed to “Reuters” from August 1, 2012 till date.
8. The investment manager wish to highlight an error occurred in the “reported benchmark performance returns” in our past
newsletters. The details of the same along with its impact are mentioned at the end of this newsletter.
Source – QIEF Management LLC, Mauritius, Quantum Advisors Pvt Ltd, Mumbai,
April 2017
CY 2017
CY 2016
CY 2015
CY 2014
CY 2013
CY 2012
Since
Inception
Composite USD 0.59% 4.39% 8.64% 0.24% 10.82% -8.07% 5.84% 1.88%
Benchmark
USD(*) 0.72% 5.11% 12.39% 3.01% 14.34% -8.57% 7.62% 4.19%
Composite INR -0.34% -1.05% 11.45% 5.06% 13.09% 3.78% 8.87% 6.90%
Benchmark
INR(#) 0.04% 0.84% 12.93% 8.63% 14.31% 3.79% 9.38% 8.69%
India Fixed Income Mandate Summary
The objective of the mandate is to generate income and
capital gains by investing in fixed income securities
denominated in Indian Rupees which could be issued by
The Federal Government of India (Sovereign/
Government Bonds);
Government-owned companies (Public Sector
Undertakings – PSU) of Indian origin (PSU
Corporate Bonds);
The mandate is Long-only; unhedged; with no leverage.
Table 2: A sovereign and quasi sovereign portfolio with defined
Restrictions and Risk Controls
Security
Min / Max
Weight in
Portfolio
Per Issuer
Maximum
Limit
Per Issue
Maximum
Limit
Government
Bonds 0% / 100% No Limits
50% of Net
Assets
AAA PSU
Corporate
Bond
0% / 100% 10% of Net
Assets
10% of
Outstanding
Issue
Table 3: Credit Rating Matrix – Safe and Simple
(* - domestic credit rating)
Mandate Investment Restrictions
In government bonds, foreigners will be allowed to own
upto 5% of the outstanding government bonds by March
2018. This will allow foreigners to invest a cumulative
USD 18 bln until March 2018.
The current investment of foreigners in Indian Debt till
April 2017 is approx. USD 61.0 billion.
Although the Government has now simplified the
categories and process of investing into the Indian bond
market, government bond limits may still not freely
available and hence the restriction and availability of
limits and categories to invest can significantly impede the
account performance. The ban on investment in T-Bills
and on securities with <3 year maturity will impact
portfolio flexibility while reducing duration.
Chart 1: Foreign Investors Bond Investment limits
(Source: SEBI)
Key Mandate Drivers.
A summary of the key drivers towards account
performance in the near term.
Table 4: India Macro Summary
Indicators Rationale Likely Impact
Interest
Rates
Key driver of
bond returns
RBI has
eased rates
by 175 bps;
Stance
changed to
neutral
Don‟t expect
cut in Repo
Rates;
Bond Curve to
Steepen
Inflation
Lower
inflation
would help
RBI in
cutting rates
CPI to
remain
below 5%
RBI worried on
global
commodity
prices.
Fiscal
Deficit
Fiscal
Consolidation
to avoid
rating
downgrade
Govt.
commits to
F.D of
3.0%/GDP
Budget was not
populist and
not inflationary
CAD/
Rupee
High CAD
impacts rupee
movement
CAD should
remain well
below 2.0%
of GDP in
CY 17
INR finding
strength as RBI
holds rates. and
Modi wins
elections
GDP
growth
Higher
growth =
Improved
sentiment
Investment
cycle weak
but GDP
recovering
RBI can‟t
resuscitate
growth.
(Source – Quantum Advisors Pvt ltd )
Investment Limits
for Foreigners in government bonds
(USD 32 bln)
Government Bonds
( USD 21.6 bln
Auction
(USD 8.4 bln- On Tap)
Only for SWFs; Pensions;
Endowments; Central Banks
State Development
Loans
(USD 2.0 bln)
Corporate Bonds
(USD 51 bln)
On-Tap
Min Max
India Sovereign 0% 100%
India AAA* PSU 0% 100%
All investments only in above
3 year residual maturity
Quantum Advisors Pvt. Ltd Page 3
Portfolio Characteristics
The account saw some increase in duration at the end
of the month as 10 year bond yields traded near the
7% mark. We believe in the near term yields have
peaked and will trade in a lower range in the short
term. The account is still we believe underweighted
to AAA PSU corporate bonds and should see an
increase in its allocation
Table 5: Portfolio characteristics and Measures
Portfolio Measures INR INR Ex- cash
Portfolio Yield 6.76% 7.20%
Portfolio Duration(yrs) 4.61 4.91
Portfolio Maturity(yrs) 6.52 6.94
Portfolio PVBP 0.04 0.05
Chart II: Portfolio Maturity Bucketing
Table 6: Portfolio Sectoral Allocation
Sector based
Report
% of
Portfolio
Weighted
YTM
Weighted
Key Rate
Duration
Utilities 16.95% 7.45% 0.54
Finance/NBFC 2.62% 7.57% 0.12
Government 74.29% 7.13% 3.95
Source for all above tables/charts – Quantum Advisors, Mumbai – calculated on
a portfolio weighted basis, Data as at 28th April 2017 Portfolio measures, sector based allocations of portfolio and maturity profile
of the portfolio is as of 28th April 2017. There is no guarantee that, this will
remain same and it may change at future date.
Indian Bond markets renewed its bearish upward
movement in yields in April with the outgoing
benchmark 10 year government bond paper bearing
the brunt with an increase of 27 bps in its yield to end
the month at 6.96%. On an average across the curve,
the yields have risen by about 15 bps in April. The
composite still returned 0.6% for the month helped in
large by the appreciation of the INR against USD
Chart III: Indian Government bond yields are now higher than pre-
demonetization level of 7th November
(Source : Bloomberg. From 8th November the government announced
demonetization of high value currency which led to sharp fall in bond yields )
The rise in yields since December was triggered
initially post the RBI monetary policy committee
(MPC) decision wherein they chose to maintain status
quo in a hugely non-consensus move. This led to the
first bout of rise in bond yields as the bond market
had priced in aggressive rate cuts which began to be
un-winded.
The next move up was post the monetary policy
decision of February, wherein not only did the RBI
MPC maintain the Repo rate on hold but it changed
its overall monetary policy stance from
accommodative to neutral. They did so sighting
buildup of inflationary expectations and the RBIs
desire to secure the 4% CPI inflation target on a
durable basis. The bond market read it as „end of the
rate cutting cycle‟ which led to further shedding up
off duration.
In the April monetary policy they retained their
neutral outlook and also indicated steps to suck out
the excess liquidity.
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
0.0
2.0
4.0
6.0
8.0
10.0Duration (LHS) 10 Year Yield
5.5
6.0
6.5
7.0
7.5
8.0
7-N
ov
20
-No
v
3-D
ec
16
-De
c
29
-De
c
11
-Jan
24
-Jan
6-F
eb
19
-Fe
b
4-M
ar
17
-Mar
30
-Mar
12
-Ap
r
25
-Ap
r
5 yr 10 yr 30 yr
Quantum Advisors Pvt. Ltd Page 4
Table 7: RBI MPC finding its feet?
MPC
Meeting
Expecta
tion Decision Vote Stance
Oct‟16
Hold
rates
unchang
ed
Repo
Rate cut
by 25
bps to
6.25%
6-0
Growth
Focussed;
4% inflation
target over
medium
term
Dec‟16
Cut by
25 to 50
bps
Repo
Rate Un-
changed
6-0
Inflation
worries
;
Demonetisa
tion
fuzziness
Feb‟17 Cut by
25 bps
Repo
Rate Un-
changed
6-0
Commitmen
t to 4%;
Stance
changed to
Neutral
from
accommoda
tion
Apr‟17 Un-
changed
Repo
Rate Un-
changed
6-0
Neutral
Stance;
Steps to
remove
excess
liquidity
(Source : RBI - Monetary Policy Report, Quantum Data)
The RBI monetary policy minutes for April released
later in the month saw one RBI-MPC member
indicating a pre-emptive rate hike.
This did take the markets by surprise as at a time of
current headline CPI inflation around 4% and benign
commodity prices and stronger rupee even the
thought of a rate hike sounds extremely hawkish. The
RBI we believe is trying to stake back its credibility
that it had lost during the demonetization fiasco.
Thus the recent moves to not cut rates, moving to
neutral stance, committing to secure 4% headline CPI
inflation in a durable manner before March 2019 and
the indication to hike rates even at this benign
juncture should be read as RBIs intention to regain its
institutional credibility.
It just shows RBI‟s intention to achieve the 4%
inflation target on a durable basis and that it will not
shy away from non-consensus actions to contain
inflationary expectations. This should put off
whatever little expectations markets had on
possibilities of rate cuts.
In fact, if monsoons indeed turn out to be poor with a
resultant increase in food prices, India could well be
seeing a reversal in the rate cycle as early as October
– December.
The 10 year government bond yield almost touched
the 7% mark post the release of the minutes. The
bond markets have really given up all hopes on any
further rate cuts by the RBI.
Chart IV: Bond markets have given up on rate cut expectations?
(Source : Bloomberg)
As seen in Charts III&IV, bond yields, term spreads
and the curve itself are all moving upwards. This is a
pretty good sign of the bearishness on the Indian bond
market curve.
Apart from the change in market expectations on rate
cuts, the other issue for the Indian bond market to
grapple would be on the manner in which the RBI
manages the excess liquidity situation.
Demonetization left the banking system with excess
liquidity leading to distortion in market yields. The
RBI has finally signaled its intent in managing the
resultant liquidity situation.
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50Repo Rate 10 yr Treasury
Quantum Advisors Pvt. Ltd Page 5
The RBI narrowed the interest rate corridor with the
Reverse Repo rate (the rate at which banks lend to
RBI) now at 6.0% (from 5.75%) and the Marginal
Standing Facility (MSF) now at 6.5% (from 6.75%
earlier). The 25bps increase in the reverse repo rate is
not to be seen as a rate hike, but as a calibrated move
to ensure better liquidity and interest rate
management.
Chart V: Indian Banks awash with liquidity since demonetization
(Source : RBI, Quantum Calculations)
The banking system is still flush with excess liquidity
of more than INR 4 trillion (~USD 60 billion). This
liquidity has resulted in overnight and short term rates
trading below the Repo rate.
For instance, the 91 day treasury bill yield was
trading at 5.75% as against the Repo rate of 6.25%.
The Repo rate is the policy rate of the RBI. It is
imperative for the conduct of monetary policy that the
RBI maintain overnight and short term rates near or
above the Repo rate.
We were thus expecting RBI to take strong measures
to suck out the excess liquidity and bring about sanity
to short term interest rates.
The RBI has addressed it but chose to do it in a non-
disruptive manner. It is a smart move and seems to
have had its desired impact without too much market
impact. Instead of hiking the Cash Reserve Ratio
(CRR), they have chosen to raise the Reverse Repo
rate and use other sterilization measures to mop up
liquidity to thus try and align the short term market
interest rates.
Chart VI: Liquidity distorts India rate sanctity
(Source : Bloomberg)
Along with this, they would also use longer tenor
reverse repos, issue MSS (sterilization) bonds, Open
Market Operations (sell government bonds) among
others to manage liquidity at a level to maintain
sanctity of the Repo rate. Short term rates (overnight
and treasury bill rates) will move in the 6.0% - 6.25%
band and move above the 6.25% mark as currency in
circulation increases (people withdraw the re-
monetized money from banks) and the liquidity
surplus dwindles. We expect liquidity to get back to
neutral from the current surplus in 2 more quarters.
Portfolio Outlook and Strategy:
Our base view remains of a long rate pause but our
portfolio positioning is already biased towards low
duration / high spread assets within the remit of the
account of investing in Sovereigns and AAA rated
quasi-sovereigns.
The account had raised its cash levels in the end of
March taking advantage of the year end valuation
driven rally. We deployed the cash post the sell-off in
yields in some illiquid sovereign spread papers in the
10-12 year segment as it was available at more than
50 bps spread over the equivalent liquid paper.
This had led to overall fund duration slightly higher
than last month and above our comfort level at this
stage of the cycle.
(4,000)
(2,000)
0
2,000
4,000
6,000
8,000
10,000
INR
Bill
ion
s
System Liquidity
Core Liquidity
5.70%
5.80%
5.90%
6.00%
6.10%
6.20%
6.30%
6.40%
6.50%
Repo Rate 3 Month T-Bill
1 Year T-Bill
7th Nov'16
31stMarch'17
28April'17
Quantum Advisors Pvt. Ltd Page 6
We would look to balance the increase in duration by
taking profits in some other papers and/or holding
some cash positions or both.
As highlighted earlier, the fund is also likely to see an
increase in allocation to the AAA PSU papers in the
3-5 year category away from front end sovereign
papers. We are awaiting further increase in spreads
which is likely as corporate bond supply increases in
the next two months.
Although, the FED is unlikely to move in May, but
we feel it is about time the US FED begins to lead
than follow the market in its rate normalization
process.
Post the September German election, one should also
expect a combined action of US Fed Balance sheet
unwinding and ECB taper. The one pager Trump tax
reform seems will take a long time to fructify into a
legislative action but whenever the congress acts on
it we do think US fiscal deficit will increase.
Chart VII: Indian bonds re-aligned to global trend
(Source : Bloomberg, 10 year bond yield, Data as at April 2017)
With these risks in horizon, we expect the RBI to
remain conservative and focused on domestic
inflation and stability. We do think there has been
some change in the RBIs FX management policy.
They don‟t seem as intent in buying FX reserves and
arresting INR appreciation.
The INR thus remains one of the best performing EM
currency.
Chart VIII: INR not fragile anymore?
(Source : Bloomberg, data as at 28th April 2017)
Macro (CAD, Inflation and politics) supports the
positive sentiment towards India and is reflected in
the continued inflows by foreign portfolio investors
into Indian Equity and Debt.
Chart VIII: Foreigners looking at India bonds again?
(Source : Bloomberg, NSDL)
We expect foreign investors to continue to invest/add
on to India debt on the stable outlook on INR and
higher nominal rates and spreads available which will
continue to enthuse the overseas investors.
-100
-75
-50
-25
0
25
50
75
100bps change of 10 year bond
Nov-16 Dec-16 YTD 2017
40
60
80
100
120
2012 2013 2014 2015 2016 2017
IndianRupee
Indonesian Rupiah
BrazailianReal
SouthAfricanRandTurkishLira
Indian Rupee vs Fragile Five
-6000
-4000
-2000
0
2000
4000
6000
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
FII Net Monthly Flows 10 yr GsecUSD Mln
Quantum Advisors Pvt. Ltd Page 7
A Primer on Indian Fixed Income
Investing in India – a macro view on growth and
stability
India‟s stable and growing economy, favorable
demographic profile, democracy and the strength of its
institutions bodes well for a long term improvement in its
fundamental strength as a nation.
India’s economic growth, which has averaged 6.2% per
annum for the past 30 years across 9 governments, 6 of
which have been coalitions; can achieve 7% growth on
better policy making and investments in infrastructure.
Chart 1: Solid GDP growth of 6.2% per annum in last decade
Source – Quantum Advisors, shows average annual rate of growth in GDP
during the regime of every government
Foreigners are under invested in Indian Bonds
India is an investment grade destination with a stable
outlook. Further fiscal reforms (mandated by an act of
parliament) could lead to upgrades in its foreign currency
rating overtime. Global pension and endowment funds
could view the upgrades favorably and look to allocate to
Indian bonds.
Chart 2: Foreigners own Indian Equities; Time to Bond with India
Source – sebi.gov.in, Bloomberg, Data as of April 2017
India is a trillion dollar bond market.
Government bond markets are fairly liquid and recent
measures to develop the corporate bond and corporate
infrastructure bond market are likely to bear fruit. India‟s
bond markets are fairly well-developed compared to some
other emerging market peers.
Chart 3: Can you ignore a large bond market?
Source – NSE;; Data upto Mar 2016
The stable political mandate should augur well for India‟s
policy making. The new Governments focus on fiscal
consolidations is needed for improving the Indian macro
situation
Chart 4: Domestically funded fiscal Deficit
Source– ADB Bonds online, RBI, Data as Dec 2016: Quantum Data
414, 46%
233, 26%
51, 6%
75, 8%
45, 5% 82, 9%
Govt. Bonds
State Govt Bonds
Treasury Bills
PSU Bonds
Bank Bonds
Corporate Debt
(USD Bln , as a % of total ) - Total Size : USD 900 Bln
Quantum Advisors Pvt. Ltd Page 8
India will eventually be a part of a global bond index widening the investor base and leading to substantial
inflows at the minimum of USD 20-25bln. Foreign
investors own less than 5% of all outstanding bonds
(government and corporate) and account for around 10% of
the daily volumes in the bond market. But this will change
as the limits for foreign investments into Indian bond
markets increase over the next decade.
Chart 5: India is seeking „Long Term‟ investors in the bond market
(Source: SEBI)
Rules relating to foreign investments into bond markets have
been relaxed substantially and going forward it is likely that
these may be relaxed further. India now has a separate limit
in Government bonds for Long term foreign investors like
SWFs, Pensions; and Central banks; thus signaling its intent
to attract long term money into its bond market.
Chart 6: Domestic Banks and Insurance/Pensions own Govt bonds
Source – ADB Online Report –September 2016: Quantum Data
India’s financial reforms have helped channel retail
savings into banks, insurance and mutual funds making
them dominant players in the bond and money market.
India’s bond market will evolve over time in size, depth,
breadth, and resiliency and all else being equal this will
reduce yields, potentially enhancing the value of an
underlying portfolio built by at current yields of around
9%.
Chart 7: Indian corporate bond market needs to evolve
Source– Bloomberg; ADB Bonds online. BIS RBI, Data as of June 2016
A consistently conservative/prudent Central bank now
under Dr. Urjit Patel maintains macro-economic and
financial stability. Dr.Rajan‟s focus on lowering inflation
and providing „Real‟ returns for domestic and foreign
investors was laudable and is expected to continue. A
committee has recommended RBI to move towards single
indicator / inflation targeting approach.
Chart 8: RBI has moved to Inflation Targeting
Source– Mospi; RBI; Current Repo Rate =6.25%; Quantum Estimates from
Feb‟17- Dec‟ 17
Investment Limits
for Foreigners in government bonds
(USD 26 bln)
Government Bonds
( USD 20 bln
Auction
(USD 5.5 bln- On Tap)
Only for SWFs; Pensions;
Endowments; Central Banks
State Development
Loans
(USD 0.5 bln)
Corporate Bonds
(USD 51 bln)
On-Tap 131 135 160 220
698 741
4706
20 98 129 76 202
1051
2198
0500
100015002000250030003500400045005000
Government Bonds
Corporate Bonds
Bond Market Capitalisation (USD bln)
2.00
4.00
6.00
8.00
10.00
12.00CPI CORE CPI RBI CPI Target
All investments only in above
3 year residual maturity
Quantum Advisors Pvt. Ltd Page 9
Indian bonds offer high nominal yields and spreads
Chart 9: India 10 year Sovereign yields around 6.8% now only 400+ bps
spread over US treasuries
Source – Bloomberg, Data as April 2017
Indian Rupee is the joker in the pack – but it can swing
500 bps annually before it makes you cry – of course, we
hope it makes you laugh!
Chart 10: Is the Indian Rupee the friendly joker in the pack that could add
to overall returns?
Source – Bloomberg, Annual calendar returns, Data upto April 2017
India being a current account deficit country will suffer from
bouts of rupee depreciation due to global risk aversion. But
we feel it would be temporary as the growth prospects would
draw in capital flows leading to stability in the currency.
India’s current account deficit (driven by oil and gold) if
kept below 3% of GDP would lead to lower vulnerability
and lesser dependence on external capital. An increase in
CAD during a period of global stress tends to amplify
India‟s funding requirements and leads to currency volatility.
Chart 11: Growth and Stability to draw in capital flows
Source – RBI, Data as of March 017: Quantum Estimates
The silver lining for India is that a period of sustained
growth can lower the fiscal deficit; increase investment
confidence and hence draw in more capital flows to be easily
able to fund the current account deficit.
RBIs resolve in increasing Forex Reserves to impart FX
stability would go a long way in increasing confidence on
the INR which was impacted in the summer of 2013.
India‟s high domestic savings, high forex reserves and low
external debt/GDP does provide a buffer but we still need
capital flows of 5% of GDP to keep the currency stable
Chart 12: RBI has to build FX reserves to stabilize INR
Source – Bloomberg, data upto April 2017
0.0
2.0
4.0
6.0
8.0
10.0
2002 2004 2006 2008 2010 2012 2014 2016
India 10 Year Govt. Bond YieldIndia Govt. Bond (Spread over UST)India AAA PSU Bond (Spread over UST)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
CY
20
01
CY
20
02
CY
20
03
CY
20
04
CY
20
05
CY
20
06
CY
20
07
CY
20
08
CY
20
09
CY
20
10
CY
20
11
CY
20
12
CY
20
13
CY
20
14
CY
20
15
CY
20
16
CY
20
17
Rupee Returns INR/USD Change Dollar Returns
Quantum Advisors Pvt. Ltd Page 10
India Fixed Income Mandate Summary
The objective of the mandate is to generate income and capital gains by investing in fixed income securities denominated in
Indian Rupees issued by
Federal Government of India (Sovereign/Government Bonds);
Government-owned companies (Public Sector Undertakings – PSU) of Indian origin (PSU Corporate Bonds);
The mandate would be Long-only; with no leverage and un-hedged
Foreign investor Bond Investment Limits Increased – Attracting Long-Term Investors
Foreign investment in Indian bond markets is restricted. But the limits have been increased substantially in the last two years.
The Government has recently opened up a separate limit for Global Sovereign and Pension Funds.
We at Quantum focus on investing in Indian Sovereigns and Quasi-Sovereigns to offer a mandate which is safe, liquid and the
capacity of which is restricted only by limits on foreign investments rather than liquidity and safety of the underlying.
Chart 13: India Fixed Income Investment Landscape
(Source : Quantum Data; Bloomberg)
Table 1: Mandate Investment Avenues
Instrument/ Category Segment of the yield curve Key Rationale
Government Bonds Most Active – 5/10/30 Liquidity, Duration
AAA PSU Bonds/Utilities/ Banks/
Infra financing Most Active – 1-3 year
5 and 10 year
Govt. ownership / Spreads
/ Infrastructure Link
6.8%
7.5%
7.8%
9.5%
18.0%
0.0% 5.0% 10.0% 15.0% 20.0%
5 Yr Government
Bond
5 Yr PSU
5 Yr AAA
5 Yr A
Real Estate
Liquid
and
Safe
Illiquid
and
mis-priced
Reputation
Risk
Quantum Advisors Pvt. Ltd Page 11
Important Information and Disclosure in relation to the past “Reported benchmark performance returns” The benchmark for the Q India Fixed Income composite (in INR terms) is “Crisil Composite Bond Fund Index” (Crisil Index),
which we believe is the appropriate index for comparing the performance of the strategy in INR.
However, beginning Jan-2015, due to some inadvertent manual error, we have been reporting the benchmark returns of “I-Sec
Bond Index” for certain periods under the heading Xrisil Index.
This error was identified by our performance team in April 2017 and the corrected numbers are reflected in this newsletter of
April 2017 with the correct benchmark returns of “Crisil Composite Bond Fund Index” for the purpose of evaluating the
performance of the strategy in INR
A comparative analysis of the periods during which error has happened has been provided below:
Period reported in Newsletter
CY 2015 CY 2014 CY 2013 CY 2012
Incorrect – I-Sec Bond Index 8.37% 15.12% 4.12% 10.99%
Correct - Crisil Composite Bond Fund Index) 8.63% 14.31% 3.79% 9.38%
Difference in reported performance -0.26% 0.81% 0.33% 1.61%
As it can be seen from the table above, the error has resulted into understating the performance returns of the benchmark for
the year CY 2015 and overstating the performance returns of the benchmark for the years CY 2012, CY 2013 and CY 2014.
Quantum Advisors Pvt. Ltd Page 12
About Quantum Advisors Private Limited (QAS )
Investing with principles.
To build an India-focused investment management institution,
that can consistently make money for our clients without taking undue risks
over longer time horizons and chart a controlled growth in our AuM
across the major asset classes: equity, fixed income, real estate, infrastructure
Investment Advisors: A disciplined, proprietary, long-term investment process - in a sustainable macro-framework
Quantum Advisors, is a Mumbai-based SEBI registered Portfolio Manager, an SEC* registered Investment Advisor and a “Restricted Portfolio
Manager” in the Canadian provinces of British Columbia, Ontario and Quebec. Its 100% subsidiary Quantum AMC, a Mumbai based SEBI
registered Investment manager provides research services to Quantum Advisors.
The fixed income research and investment teams at Quantum AMC and Quantum Advisors follow a robust Macro to Micro top down approach.
They maintain proprietary credit research models with qualitative assessments and quantitative forecasts
These proprietary research reports have been debated and approved by the team at Quantum AMC
Quantum‟s desire to help build a sustainable, profitable long-term portfolio for clients is paramount; and is reflected in the diligent long-term
quantitative and qualitative research process.
The Fixed Income research team at Quantum Advisors is led by Arvind Chari, Head of Fixed Income and Alternatives. .
Arvind has over 12 years‟ experience in Indian fixed income markets across dealing, research and portfolio management. Arvind joined Quantum
in 2004 as Research Analyst – Fixed Income to build the fixed income and macro economy research function and also to help develop fixed
income products for Quantum Mutual Fund. Arvind holds a Masters in Commerce(M.com) and Masters in Management Studies (MMS) from the
Mumbai University
*While we shall comply with all applicable regulations and it is our endeavour to follow industry best practices for the benefit of all our clients, non-US
persons and investors in our non-US funds should take note that registration of QAS as an investment adviser with SEC does not imply that our non-US
clients are entitled to the full benefit of all substantive provisions of the Investment Advisers Act 1940 (Advisers Act) or that we are required to comply
with all the provisions of the Advisers Act in our dealings with our non-US clients, including non-US funds. We will thus have responsibilities under the
Advisers Act that differ from client to client, based on whether or not the client is a non-US client”.
This newsletter is strictly for information purposes only and should not be considered as an offer to sell, or solicitation of an offer to buy interests in the
account. Investments in the fixed income instruments are not guaranteed or insured and are subject to investments risks, including the possible loss of the
principal amount invested. The value of the securities and the income from them may fall as well as rise. Past performance is not necessarily indicative of
future performance. Quantum Advisors reserves the right to make the changes and corrections to its opinions expressed in the document at any time,
without notice. Information sourced from third parties cannot be guaranteed or was not independently verified. Comments made herein are not
necessarily indicative of future or likely performance of the account and are based on information and developments as at 28/04/2017 unless otherwise
stated.
All of the forward-looking statements made in this communication are inherently uncertain and Quantum Advisors (QAS) cannot assure the reader that
the results or developments anticipated by QAS will be realized or even if realized, will have the expected consequences to or effects on, us or our
business prospects, financial condition or results of operations. A prospective investor can generally identify forward-looking statements as statements
containing the words “will,” “should”, “can”, “may”, “believe,” “expect,” “anticipate,” “intend,” “contemplate,” “estimate,” “assume”, “target”,
“targeted” or other similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements in making any
investment decision. Forward-looking statements made in this communication apply only as of the date of this communication. While we may elect to
update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if internal estimates change, unless otherwise
required by applicable Securities laws.