Market Outlook (October 2017)

Policy Review

Government continues to take policy reforms / initiatives. These initiatives are now more focused towards large underprivileged sections of the society.

To provide 'Power for All by end of 2018', the government targets to complete the electrification of the ~40mn households across rural and urban areas in India by end of 2018, under the scheme called “Saubhagya”. The total outlay for the scheme is ~US$2.5bn, to provide free/highly subsidized electricity connections to households. Under the existing schemes of electrification & distribution reform, the Central government has provided funding of ~US$3.5bn to States over the last 3 years.

The government has announced a new Public-Private Partnership (PPP) policy for affordable housing, to help achieve the ‘Housing for All’ target by 2022. The government will provide central assistance of Rs.0.25mn for each house as interest subsidy on bank loans as upfront payment to encourage private investments in affordable housing.

Economic Review

Rain dependent India has seen below normal monsoon. South-west monsoon trends have disappointed in September with cumulative rainfall worsening from 4% below normal at the start of September to 5% on an aggregate basis. This would have impact on agricultural production and rural income.

Crude oil prices continued its upward trend rising by 8.5% in September, with prices up 26% since June lows. India is highly dependent on imported crude and 80% of its requirement is imported. Rising cost of oil imports and improvements in other imports on one side and softer exports on other have led to sharp widening of Current Account Deficit (CAD) for Q2 to US$14.3bn vs. US$3.5bn in 1Q17. Market economists forecast CAD to more than triple to US$48bn in FY18 vs. US$15bn the previous year. India’s August trade deficit inched up to US$11.6bn vs. US$11.4 bn in July. On an aggregate, exports grew sequentially by 2.4% in August vs. -0.8% m/m in July. However, manufacturing exports increased by only 0.3% m/m in August, after the large 4.4% sequential decline in July post GST implementation.

India FX reserves increased by 2% to US$403bn, crossing the US$400bn mark for the first time ever as net capital flows remained positive.

Headline CPI accelerated to 3.4% in August vs. 2.4% in July. Inflation remained elevated on a sequential basis as well at 0.7% m/m (0.8% in July). This is partly due to implementation of increase in the housing-rent-allowance (HRA), a part of 7th Pay Commission's recommendation and price increases on account of the transition to the GST tax regime. WPI increased to 3.2% in August vs. 1.9% in July and the highest level since April 2017. The increase in WPI was driven mainly by fuel and power inflation.

India’s manufacturing PMI bounced back in August from the eight-year-low witnessed in July on account of the GST-induced de-stocking. With much of the uncertainty resolved and firms re-stocking again, both output and new orders mean-reverted (increasing by 5.9 and 5.3 points respectively), and thereby pushed up the headline PMI by 3.3 points from 47.9 in July to 51.2 in August. Increase in the services PMI in August of 1.6pts was lower than the 3.3pt increase in the manufacturing index, suggesting the manufacturing sector is recovering faster. The increase in both manufacturing and services PMI meant that composite index also rose from 46.0 in July to 49.0 in August; however composite PMI remained in contraction territory.

GST implementation weighed on July industrial production (IP) at 1.2% vs. consensus 1.6%. Sequentially, July IP contracted 0.6% m/m vs. 1.4% m/m decline in June. In contrast, market had expected a modest mean-reversion of 0.3% m/m based on early signs of restocking visible in the out turn of core IP and auto production in July. Instead, IP revealed broad-based weakness in activity, reflecting a continued drag from the GST.

The government has front-ended expenditure in the first few months of fiscal year, with fiscal deficit at 96% of annual budgeted over Apr-Aug'17 vs. an average of 75% in the previous three years. We need to watch the near term impact of GST implementation on government indirect tax revenues.

Fund Flows in Markets

FIIs remained sellers for the second consecutive month at US$1.8bn in September, the largest monthly outflow since demonetization in November 2016. FII outflows over the last two months are at US$3.6bn. FII net equity inflows are at US$5.3bn year to date (YTD). FII flows in debt markets remained positive for the 8th consecutive month at US$184mn, taking YTD inflows in debt markets to US$20bn.

Mutual funds continue to remain buyers of Indian equities at US$2.5bn in September, the 14th consecutive month of net buying. Mutual fund inflows are at US$13.1bn YTD. Insurance companies turned net monthly buyers for the first time this year at US$486mn in September. Insurance outflows are at US$3.6bn YTD.

Geopolitical tensions pertaining to North Korea’s nuclear weapon tests, higher crude prices, moderating rate cut expectations and concerns on widening fiscal deficit & current account deficit have impacted market sentiments. Hence, Equities, Bonds and FX saw a modest correction.

Equity markets

Nifty declined by 1.3% in September, underperforming peer group in emerging markets over the month. MSCI EM and APxJ were both down 1%. Mid Caps performed largely in line with large caps in September.

Nifty is up 6.7% in this financial year. This has been aided by global risk-on sentiments, local policy support - cuts in policy and lending rates, progress on GST implementation and the BJP’s positive show in state elections.

Consensus estimates earnings growth of 14% for FY'18 for the Nifty indices. The breadth of earnings revisions remains negative. Valuations for the Nifty at 25.92 times trailing earnings are above +1SD from historical averages seen over the last decade.

Currency and Bond Markets

Inflation trends have started to inch up over the last month as has fiscal pressures. Fiscal deficit at the end of August stood at 96.1% (vs. 76.3% last year) of the budgeted annual deficit. Hence, benchmark 10-year treasury yields increased by 20bps in Sep to 6.66%.

INR depreciated by 2.1% (vs. USD) in Sep to 65.3. The dollar index (DXY) appreciated marginally by 0.5% to 93 over the last month.

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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Investment Reports

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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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