Market Outlook (July 2018)

Political Developments

In politics, Congress has emerged victorious in both the constituencies of Jayanagar and RR Nagar, where polling was deferred in the Karnataka State Legislative Assembly elections held in May. The Congress has now increased its tally to 79 out of 224 seats in the Karnataka assembly.

The Bharatiya Janata Party (BJP) withdrew support to the coalition government in Jammu and Kashmir bringing an end to the alliance with the Peoples Democratic Party (PDP). This is the second such instance this year. Earlier the Telugu Desam Party (TDP) from Andhra Pradesh ended its alliance with the NDA government.

In a bold move, India has imposed retaliatory tariffs on the US. Indian Government raised import duties on 30 US products primarily agricultural and steel products totaling to US$240mn, which is similar to tariffs imposed on Indian aluminum and steel exports.

India's Economic Review

According to the data release by the India Meteorological Department (IMD), cumulative rainfall in the country from 1-27 June 2018 was at 10% deficit. The Southern region received surplus rainfall, while North West, North East and East recorded notable deficit rainfall.

May headline CPI accelerated in line with expectations at 4.9% vs. 4.6% in April. The sequential momentum of core-core inflation continued to firm, printing at 0.5% over previous month in May vs. 0.7%/0.6% in April/March respectively. This is the third consecutive month that the sequential core-core inflation has printed at or above 0.5% m/m. WPI surged to a 14 month high at 4.4% in May vs. 3.2% in April.

Industrial Production for April disappointed at 4.9% vs. consensus expectations at 5.7%. April IP was sequentially flat after two successive months of contractions and confirms a loss of momentum in recent months. Composite PMI disappointed at 50.4 in May vs. 51.9 in April, led by sharp contraction in Services PMI at 49.6 vs. 51.4 the previous month. Manufacturing PMI softened as well to 51.2 vs. 51.6 in April.

Brent crude prices at US$77.5/bbl are flat in June. However, prices rallied by 7% from monthly lows in the last week of June. Crude oil continues to move higher despite the announcement by OPEC to increase supply by 1mbd, as OPEC is still to confirm that co-operation with non-OPEC countries is still in place coupled with potential production outages in Venezuela and Iran.

Trade deficit widened to US$14.6bn in May vs. US$13.7bn in April. Oil imports at US$11.5bn in May are at similar levels seen in 1Q18, despite crude oil averaging US$65/bbl in 1Q18. The monthly oil imports are likely to accelerate in coming months if crude oil stabilizes at current levels. Export growth at 20% in May was robust and the highest since Nov-17. However, exports were boosted by oil exports, which spiked to US$5.2bn in May vs. US$3.3bn average in last six months and would likely mean revert over the coming months.

Global outlook

IMF expects global GDP growth to remain strong, despite the move towards normalization of interest rates by developed market central banks. GDP estimated have risen at above-trend 3.3% pace in 1H. CPI inflation stepped modestly higher, and the Fed has promoted a gradual rise in global policy rates.

Geopolitical tensions and lingering risks of large supply disruptions led by US sanctions on Iran adds upward risk bias to oil prices in the months ahead and could push oil prices higher in the near term. At the same time, if oil prices remain high ahead of the US mid-term elections, there is an increasing risk that the US, or its OECD allies, could respond by releasing the strategic petroleum reserves. Overall, outperformance for commodities in 2H18 hinges on the USD and geopolitics.

Institutional Flows

FIIs remain net equity sellers for the third consecutive month in June at US$0.6bn, post outflows at US$1.4bn in May 2018. YTD FIIs are net equity sellers at US$0.9bn. FIIs recorded outflows in debt markets for the fifth consecutive month at US$1.6bn in June with outflows at US$2.6bn in May. YTD FIIs are net sellers in debt markets at US$6.1bn.

DIIs remain net equity buyers for the 15th consecutive month at US$1.8bn in June (US$2.2bn in May). YTD DII inflows at US$9.1bn are driven largely by MFs. Mutual funds recorded the 23rd consecutive month of net buying. However, net equity inflows moderated in June at US$1bn vs. US$2bn in May and the YTD monthly average at US$1.8bn. YTD mutual fund net equity inflows are at US$10bn. Insurance funds are net equity buyers for the 2nd consecutive month at US$786mn in June (vs. US$216mn in May) and the largest monthly inflows since Nov-16. YTD insurance funds remain net equity sellers.

Currency and Bond Markets

India’s Monetary Policy Committee voted unanimously to hike policy rates by 25 bps in June, taking the Repo rate to 6.25%. The MPC also hiked its second half (fiscal year) inflation forecast by 30 bps from 4.4% to 4.7%. The policy minutes note a confidence in the growth recovery, but remain concerned with the continued strength in core inflation and meaningful hardening of household inflation expectations.

Benchmark 10 year treasury yields increased by 7bps in June to 7.9%. Bond yields moved higher particularly in the last week of June exacerbated by continued increase in crude oil prices and adverse impact on inflation. 10 year bond yields have increased 80bps from YTD lows at the beginning of April.

Fiscal deficit at the end of May-18 is 55.3% of the budgeted FY19 annual deficit (vs. 62.8% last year).

INR depreciated in June by 1.5% at 68.5/$ on fears of widening trade deficit on rising crude oil prices coupled with FII outflows from both equity and debt markets. The INR reached an all-time low at 69.1/$ before paring losses as the RBI intervened. Note the DXY appreciated by 0.9% to 94.8 in June. India FX reserves came down to US$410bn in June vs. US$412bn last month.

Equity market review

Nifty declined marginally (less than 1%) in June, but outperformed peer group meaningfully - MSCI EM down 5% and MSCI APxJ down 4%. Mid/Small Caps saw substantial selling pressure declining 4%/8% and meaningfully underperformed the broader markets. EM equities sold off as Chinese economic data disappointed coupled with a hawkish FOMC. Also, trade war tensions between US and China intensified with President Trump threatening new tariffs on Chinese goods worth US$200 billion.

The macro backdrop for India remained under pressure as crude oil prices moved higher despite the announcement by OPEC to increase supply by 1mbd, as US imposes sanctions on Iran. Consensus FY19E earnings estimates for the broad market were revised down by 2%/4% for the last few months. The street now estimates earnings growth for the MSCI India universe at 18-19% for FY19E.

Nifty is trading at 26 times trailing 12 months earnings. This valuation is considered expensive from historical perspective leading to lower expected long term returns.

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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Track Fund Performance

  • 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 September 2018

  • List of Closed / Merged Funds

  • Latest interest rates on the Government Of India Securities (G-Sec)

Investment Reports

Annual Reports

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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