Market Outlook (June 2018)

Policy Review

Political environment is heating up in the country. The BJP emerged as the single largest party in Karnataka State Elections with 104 seats, but fell short of a majority by 8 seats and was unable to form the Government. The JD (S) and Congress got into a post poll alliance and formed a coalition Government. The BJP and its allies lagged in by-elections as well which were held in four parliamentary seats – the BJP winning 2 and losing out in 2. In various State Assemblies, the BJP won just 1, with the opposition taking 10 seats.

Economic Review

GDP growth of last quarter of FY'18 surprised on the upside, printing at 7.7% growth, an outcome above market expectations and significantly higher than the government’s advance estimate of 7.1%. The impressive year-on-year lift from 7% in previous quarter was due to favorable base effect and strong support from the public sector. Notwithstanding this last-quarter boost, FY18E ended with GDP growth slowing to 6.7% from 7.1% the previous year.

India Meteorological Department (IMD) predicted a ‘normal’ monsoon in its second stage forecast. Monsoons have already arrived in parts of Kerala, ahead of forecast. All of India is likely to receive a “normal monsoon”, except the east and northeast of the country, which are likely to witness “below normal” rainfall.

Crude prices reached US$77.1 in May, up by 2.6%. Crude has increased by a sharp 38%+ since last June lows. CPI inflation rose more than expected to 4.6% in April from 4.3% in March. Impact of higher crude prices is yet to reflect and poses risks to future inflation prints. Wholesale price inflation rose 3.18% in April on higher food, fuel inflation. We expect RBI to tighten policy rates by 25 bps in coming months.

India’s April trade deficit printed lower than expected at US$13.7 billion – similar to March level –mainly due to oil imports. In April, oil imports declined to US$10.4bn from US$11.1bn in March, despite an 8% oil price increase. However, given the leads and lags involved, oil price increase eventually will translate into higher oil imports. Exports growth remained sluggish, at 0.1% over previous month in April on back of a 0.6% gain in March.

Fiscal deficit for FY'18 is declared at 3.53% of GDP which is in line with revised annual deficit estimates.

India’s industrial production disappointed in March, declining 0.7% m/m, on the back of the 0.2% decline in February and thereby giving up almost all the 1% m/m gains in January. Consequently, annual growth printed at 4.4% in March, significantly lower than expectations. Further, the March decline largely was driven by the very volatile capital goods sector.

India’s manufacturing PMI firmed in April, beginning to catch up with other high-frequency indicators like industrial production and auto sales, as the drags from GST and demonetization wane. Specifically, the manufacturing PMI increased for the first time in four months, to 51.6 in April from 51.0 in March.

Currency and Bond Markets

Benchmark 10 year treasury yields increased by 6bps in May to 7.83%. This comes after a meaningful 37bps increase in April and was on the back of cautious MPC commentary signaling possible ‘withdrawal of accommodation’. Overall bond yields have risen by 140bps since Aug.

USDINR depreciated in May by 1.2% at 67.4 (vs. USD) on fears of widening trade deficit, rising crude oil prices and rate hike by US Federal Reserve. India FX reserves came down to US$412bn (vs. US$420 bn last month).

Equity markets

Mar-Q earnings have largely been in line with expectations, barring financials sector (due to higher credit costs) and misses from few large companies.

Nifty was largely flat during the month. EM equities sold off as the DXY appreciated by a meaningful 2.5%. The macro backdrop remained under pressure as oil prices rallied further after President Trump announced that the US will pull out of the Iran deal. Mid-caps saw substantial selling pressure (mid-cap Nifty down 7%) and meaningfully underperformed the broader markets.

Year to date Indian equity markets have lagged peer group, dragged down by mean reversion in key macro variables – fiscal and current account deficit and inflation – as global crude oil prices have surged and some political uncertainty on the margin given the substantial political calendar.

MSCI has proposed to potentially cap the weight of some markets in MSCI indexes, where they believe local exchanges/stakeholders might be imposing market accessibility restrictions. MSCI has highlighted that India, Brazil, Turkey and South Korea are potential future examples of markets whose weights could be capped in MSCI indexes.

FIIs remain net equity sellers for the second consecutive month in May at US$1.2bn, post outflows of US$0.9bn in April 2018. YTD net equity FII flows are flat. FIIs recorded outflows in debt markets for the fourth consecutive month at US$2.5bn in May (outflows at US$2.1bn in April) and the largest monthly outflow since December 2016. YTD FIIs are net sellers in debt markets at US$4.4bn.

Mutual funds continue the strong momentum of inflows at US$1.9bn in May (+US$1.7bn), the 22nd consecutive month of net buying. YTD mutual fund inflows are at US$8.9bn. Insurance funds turned net buyers at US$107mn in May (outflows at US$424mn in April), with YTD outflows at US$1.8bn.

Over the month, consensus FY19E earnings estimates for the broad market were revised down by 1.6%. The Street now estimates earnings growth for the Nifty universe at 20% for FY19E. Valuations for the Nifty at 26.92 times 12 month trailing earnings are at +1SD from historical averages seen over the last decade and hence are expensive for long term investors.

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

Image

Investment Update by:

Aneesh Srivastava

Chief Investment Officer

IDBI Federal Life Insurance Co Ltd

Stay ahead of the curve with our latest Wealth Trends Download Group Policy Wealth Trends Download

Track Fund Performance

  • Fund Name

    Market Linked Fund

  • Scheme Name

    Midcap Fund - Pension

  • NAV

    ₹ 12.67

    (as on 12 May 2017)

  • Check your Fund NAV

    Login to continue

  • Actual Asset Mix

    as on March 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.

Need help
4 + 0 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.