Market Outlook (September 2017)

Economic Review

India, considered to be the fastest growing economy in the world, is experiencing policy driven slowdown. GDP growth for first quarter of FY'18 is much softer than expected. It has slowed down to 5.7% in Q1 from 6.1% in Q4-FY'17 against market expectation of 6.5%. Going ahead, Q2-FY'18 is also likely to be impacted by the transition to GST and inability of central government to keep spending at higher level witnessed in 1Q-FY'18. Transition to the GST weighed on June Industrial Production as well, which declined 1% over previous month and 0.1% Y-o-Y in June. The core sector growth was also impacted with five of the six sectors contracting sequentially. The good news is that this is likely a temporary phenomenon and we would expect a rebound ahead.

Manufacturing PMI declined to an eight-year-low. The introduction of the goods and services tax (GST) on July 1 weighed heavily on the manufacturing PMI and Services PMI. Manufacturing PMI declined 3.0pts to print at 47.9, its lowest level since Feb 2009. Services PMI declined 7.2pts to 45.9, its lowest level since Sep 2013. Street has marked down full-year FY18 GDP growth to 6.8% vs. 7.1% last year.

Monsoon trends have improved over the last week and is currently trending 3.5% below normal on an aggregate. Headline CPI re-accelerated from a series low of 1.5% in June to 2.4% in July. The surprise, if any, was that the transition to the new tax regime (GST) pushing up core prices a tad higher than expected. WPI increased to 1.88% in July, led by increase in food and mineral prices (vs. 0.9% in June).

Crude oil prices eased by 2% in August, after sharp rally seen in July. India’s monthly trade deficit, which had widened sharply to average $13.3 billion over the last three months, narrowed to $11.5 billion in July. This is likely because the transition to the GST tax regime temporarily disrupted trade volumes.

RBI has cut Repo Rates by 25 bps to 6.0% in line with expectations. But the Central Bank reiterated its neutral stance and remained relatively cautious on the inflation outlook. The Monetary Policy Committee acknowledged that previously-foreseen upside risks to inflation had either diminished or not materialized, the roll-out of the GST has been smooth and the monsoon has progressed normally. However, MPC acknowledged that it expects inflation to accelerate from the June lows.

The RBI’s Annual Report for 2016-17 confirmed that 99% of the currency that was demonetized (or Rs 15.28 trillion of the 15.44 trillion) was returned to banks as of June 30, 2017. This precludes the RBI being able to make any “special dividend” to the government, something that markets had speculated on in the immediate aftermath of demonetization. With the bulk of the currency being returned to banks, however, the fiscal focus has turned to how much direct tax revenue de-monetization will yield. As the Economic Survey (Part 2) notes, the growth of tax payers post-demonetization was significantly greater than in the previous year (45 percent versus 25 percent).

Political scenario has remained stable and Senior BJP leader and former Union Minister M Venkaiah Naidu was elected as 15th Vice President of India.

Currency and Bond Markets

Benchmark 10 year treasury yields increased by 6bps in Aug to 6.53%. Inflation trends have started to inch up over the last month as have fiscal pressures. Fiscal deficit at the end of July stood at 92.4% (vs. 73.7% last year) of the budgeted annual deficit. Unless economic slowdown continues, we expect Repo rates to remain pegged at 6% for some time to come and surplus liquidity conditions may keep 10-Year G-Sec in 20 bps range from current level. INR appreciated by 0.5% (vs. USD) in Aug to 63.9. The DXY remained largely flat at 92.6 over last month. India FX reserves remained largely flat at US$393Bn.

Equity markets

Over the month, consensus earnings estimates for the broad market were again revised downwards by 2.5% for FY18E. The street now estimates earnings growth of 14% for FY18(E) for the Nifty.

Equity markets saw consolidation over the past month given geopolitical tensions pertaining to North Korea’s weapon tests, weak quarterly earnings and downward earnings revisions. Mid Caps performed largely in line with the large caps in August.

Nifty has declined by 1.5% in August, after a sharp 7% rally in July. India Equities underperformed peer group marginally over the month - MSCI EM and APxJ are up 2% and 1% respectively.

FIIs turned seller after three months, and sold a meaningful US$1.8bn of Indian equities in August, the largest monthly outflow since demonetization in November 2016. YTD FII net equity inflows are at US$7.1bn. FIIs flows in debt markets remained positive for the 7th consecutive month at US$2.4bn, taking YTD inflows in debt markets at US$19.9bn. YTD total FII inflows in debt and equity markets are at US$27bn. DIIs are net equity buyers at US$2.5bn in August, driven by mutual funds, taking YTD DII net inflows at US$6.5bn.

Mutual funds continue to remain buyers of Indian equities at US$2.7bn in August, the 13th consecutive month of net buying and the largest monthly inflow since data is available from 2000. YTD mutual fund inflows are at US$10.5bn. Insurance companies remain net sellers of Indian equities at US$240mn in August, the 8th consecutive month of outflow. YTD insurance company outflows are at US$4.1bn.

Domestic market flows are keeping stock markets buoyant despite expensive valuation.

Note: The above data has been generated from sources in public domain.

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Investment Update by:

Aneesh Srivastava

Chief Investment Officer

IDBI Federal Life Insurance Co Ltd

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  • Fund Name

    Market Linked Fund

  • Scheme Name

    Midcap Fund - Pension

  • NAV

    ₹ 12.67

    (as on 12 May 2017)

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  • Actual Asset Mix

    as on March 2017

  • List of Closed / Merged Funds

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Important Notice

We are closing Nifty Index Fund – Pension (ULIF05519/02/09NINDEXPEN135) effective March 15, 2017. Investments in this fund will be switched to Equity Growth Fund-Pension (SFIN Code -ULIF05419/02/09EQOPPPEN135) on March 15, 2017

We have closed a few funds effective 29th June 2015 (listed in the List of Closed / Merged Funds above). Investments in these funds have been switched to the respective fall back funds as on 29th June 2015.
The new funds have the same investment objective and FMC as that of the closed funds. These Funds were discontinued as per the prevailing regulation of IRDA clarification circular no IRDA/FI/CIR/INV/234/10/2011 dated 7th October 2011 due to uneconomical size of the fund. Hence, all policy holders holding investments in such funds were given an option to do a free switch on or before 29th June 2015 and for Policy Holders who did not opt for such free switch, the investments were transferred to the respective fall back fund as per the details mentioned in below table. There is no impact to the policy holder with respect to their investments or risk cover and all other terms and conditions remain as per the Original Policy Contract

Bond Pension Fund (SFIN Code ULIF05719/02/09BONDPEN135) has been closed effective 30 Dec 2015 and all investments in this fund stand transferred to Income Pension Fund (SFIN Code ULIF05619/02/09INCOMEPEN135). The new fund has the same investment objective and FMC as that of the closed fund. The Bond Pension Fund was discontinued as per the prevailing regulation of IRDA clarification circular no IRDA/FI/CIR/INV/234/10/2011 dated 7th October 2011 due to uneconomical size of the fund. Hence, all policy holders holding investments in such fund were given an option to do a free switch on or before 30th Dec 2015; and for Policy Holders who did not opt for such free switch, the investments were transferred to Income Pension Fund on 30th Dec 2015. There is no impact to the policy holder with respect to their investments or risk cover and all other terms and conditions remain as per the Original Policy Contract. December 2015.

You may contact our call centre number 1800 209 0502 for further clarification on this or write to support@idbifederal.com for any further clarifications.

Modification in NAV Computation

As stipulated by the Insurance and Regulatory Development Authority (IRDA), in its circular REF: IRDA/F&I/CIR/INV/173/08/2011 dated Jul 29, 2011, the formula for computation of the Net Asset Value Per Unit (NAV) for the Linked Funds stands modified.

Old formula as prescribed by the IRDA:

Market value of the investment plus/(minus) expenses incurred in the purchase / (sale) of assets plus current assets and accrued interest (net of fund management charges) less current liabilities and provisions, divided by, number of units outstanding under the fund at valuation date (before creation/redemption of units)

Amended formula as prescribed by the IRDA, and effective from August 22, 2011 is as below:

(Market Value of investment held by the fund + Value of Current Assets – Value of Current Liabilities & Provisions, if any) /
Number of Units existing on Valuation Date (before creation /redemption of Units)

Modification of Asset Allocator funds

As per IRDA Circular nos. IRDA/F&I/CIR/INV/173/08/2011 and IRDA/F&I/CIR/INV/234/10/2011, all life insurance companies which offer unit-linked funds that are indirectly invested through a fund of funds structure, should convert these funds into directly invested funds with their own separately identified investments. With effect from 10th December 2011, each of the following Asset Allocator funds has been modified to comply with these circulars:

  • Aggressive Asset Allocator Fund: SFIN Code – ULIF04811/01/08AGGRESSIVE135
  • Cautious Asset Allocator Fund: SFIN Code – ULIF05011/01/08CAUTIOUS135
  • Moderate Asset Allocator Fund: SFIN Code – ULIF04911/01/08MODERATE135

This modification has not resulted in any change to the fund mandates, nor in the enrichment of one set of policy holders from others, nor in a change in the overall fund management charge borne by the policy holder.

 

Modification in Equity Valuation

In terms of IRDA circular no. IRDA/F&I/INV/CIR/213/10/2013 dated 30/10/2013, the valuation of the equity shares shall be made on the closing price of the Primary Exchange, where the securities are not listed on the Primary Exchange, the Company shall use closing price available on the Secondary Exchange. For this purpose National Stock Exchange (NSE) is the Primary Exchange and Bombay Stock Exchange (BSE) is the Secondary Exchange.

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