Market Outlook (January 2018)

Policy Review

BJP won the provincial elections held in December in the states of Gujarat and Himachal Pradesh. The contest, particularly in Gujarat, was however much tighter than predicted by opinion and exit polls, with the Congress faring meaningfully better than expected. Given the hard fought win and not so encouraging performance in rural areas, there have been increasing expectations of a rural stimulus going ahead given a busy political calendar over the next 12 months and National elections in first half of 2019.

In its policy review, Reserve Bank acknowledged that inflation pressures have increased since the October meeting, marking up its inflation forecasts for coming two quarters by 10 bp to 4.3% and 4.7%, respectively. Economists expect the RBI to remain in a prolonged pause. Market also expects that inflation would inch up in first half of this calendar year, which is partly due to adverse base effect.

GST Council announced implementation of E-way bill mechanism on a Pan-India basis from June 1, 2018. The Council has fixed February 1 as the compliance date for inter-state movement of goods.

Economic Review

November CPI inflation jumped from 3.6% in October to 4.9% in November. A cursory reading of the data would suggest the upside surprise largely due to food prices, which increased 1.7% in November over previous month, underpinned by an unseasonal increase in vegetable prices. November WPI accelerated to an eight-month high of 3.93% from 3.59% in October. Inflation rose mainly on account of a sharp increase in fuel and food prices.

Crude oil prices continued its upward trend rising by 5% in December reaching US$67. Crude prices are up by 50% since June lows. Policy makers’ forecasts of macroeconomic numbers are predicated on crude oil prices at ~US$55/bbl. November trade deficit narrowed to $ 13.83 bn as from US$14 bn in previous month. Exports during November 2017 were up 30.6%, reversing the contraction seen in the previous month. Imports were up 19%.

India’s composite PMI declined, by 1.0 pt to 50.3 in November, after recovering for three consecutive months, following the introduction of GST. Services led the drop, falling 3.2pts in November, to take the index into contractionary territory at 48.5. In contrast, the manufacturing PMI jumped 2.3 pts to 52.6. Average composite PMI is much higher in 4Q than in 3Q, in line with our expectation of further acceleration in GDP growth.

 

October IP grew 2.2%, slowing from an upwardly revised 4.1% in September. The moderation reflected mean-reversion as expected after post-GST and pre-festival bounce. On a sequential basis, production declined 1.1% in October over previous month but on the back of a cumulative 4.0% gain in August and September. The large gains in those months ostensibly reflected the re-stocking and rebound after the drag from the transition to the GST and inventory accumulation in the run-up to the festival season.

Flows in Markets

FIIs were net equity sellers in December at US$1bn, post strong inflows at US$3bn in November. In 2017, FII net equity inflows came in at US$7.7bn, the largest annual inflow since 2014. FII flows in debt markets resumed the positive trend at US$408mn in December, post US$221mn outflows in November. In 2017, FII inflows in debt markets are at US$23bn, the largest annual inflow since 2014.

DIIs remained net equity buyers for the 9th consecutive month at US$1.2bn, largely driven by mutual funds. In 2017, DII net equity inflows were at US$14bn, the largest annual inflow since 2008. Mutual funds continued the strong momentum of inflows at US$952mn, the 17th consecutive month of net buying. Mutual fund inflows in 2017 were at US$17.6bn, the largest annual inflow since 2008. Insurance funds were net equity buyers at US$254mn, taking YTD insurance outflows at US$3.6bn.

Equity market review

Nifty has increased by 5% in December, outperforming other emerging markets. The CNX Mid Cap Index rose 6%, leading to sustained outperformance vs. large caps. The global backdrop for Equities was supportive, buoyed by the passage of Tax reforms in the US. Sentiment was further boosted locally by the BJP’s win in State elections in Gujarat and Himachal Pradesh (HP) and expectations of a growth oriented Budget for FY19. Nifty has given return of 30% in CY17. This was aided by global risk-on rally, local policy support - cuts in policy and lending rates, GST implementation, BJP’s positive showing in state elections and the recent announcement on PSU bank recapitalization.

Valuations for the Nifty at 26.92 times trailing earnings are above +1SD from historical averages seen over the last decade.

Currency and Bond Markets

The government’s 1Q18 issuance calendar for G-Secs and T-bills pegged net additional market borrowing for 2017-18 (FY18) at Rs730bn (0.4% of GDP), increasing risk of slippage from the budgeted fiscal deficit target of 3.2% of GDP. Fiscal deficit at the end of November stood at 112% due to lower GST collections and higher expenditure (vs. 85.8% last year) of the budgeted annual deficit. Market borrowing constitutes a significant chunk of the fiscal deficit funding (77% of the budgeted fiscal deficit for FY18) and government revenues have been under considerable pressure this fiscal year. Hence, there is a risk that fiscal slippage might be meaningful in FY18.

Benchmark 10 year treasury yields increased by a meaningful 28bps in Dec to 7.34%. Bond yields have risen by over 90bps since Aug, given rising inflation and increasing risk of fiscal slippage.

INR appreciated by 1.2% (vs. USD) in Dec to 63.7. Note the DXY appreciated by 1% to 92.1 over the last month. India FX reserves remained increased marginally to US$380.7bn (vs. US$375.1Bn last month).

Key events for the month ahead

Winter session of parliament ends on 5th January 2018 and Budget session likely to begin on 30th January, with the FY19 Budget likely to be announced on February 1. These may decide the future course for market. Outcome of upcoming policy meetings of FOMC, ECB, BoJ policy meetings on 31st, 25th and 23rd January respectively, would also impact market sentiments.

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 2017

  • List of Closed / Merged Funds

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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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