Market Outlook (April 2018)

Pre election noises are getting louder in India. In a recent development, Telugu Desam Party (TDP) has pulled out of the NDA Government over the issue of granting special category status to the state of Andhra Pradesh. The TDP is looking to move a no confidence motion against the Central Government in the ongoing Parliament session, but it is yet to be taken up. BJP fared poorly in a few by elections in the large state of UP. This follows the weak performance last month in a few by elections in the states of Madhya Pradesh and Rajasthan. However, the BJP fared well in the North-east state legislative assembly elections held across Meghalaya, Tripura and Nagaland.

In a global development, the Trump Administration in US has released its Section 301 report and has proposed several protectionist measures. These include: (i) The US intends to impose a 25% duty on at least $50bn of a yet-to-be-determined list of imports from China; (ii) The USTR will launch a case against Chinese technology licensing practices in the WTO; (iii) The Department of Treasury will propose restrictions on investment by China in sensitive US technology.

Economic Review

India’s CPI softened a tad more than expected in February to 4.4% from 5.1% in January. Food prices underpinned almost all of the softening, declining 0.3% m/m, slowing food inflation to 3.4% in February from 4.6% the previous month. 1Q18 inflation is on course to undershoot the RBI’s 5.1% forecast by 40-50bp. WPI inflation softened to a 7-month low of 2.48% in February vs. 2.84% in January on lower food prices. Core WPI inflation although has been firm, raising concerns on sustainability of the recent benign prints.

Crude oil prices rallied to close near US$70, up by 5% in March and erasing the decline in February. This on the back of news of OPEC’s inventory targeting and extension of production cuts. Crude prices have increased by a sharp 52% since last June lows.

February trade deficit narrowed sharply on lower imports. The trade deficit narrowed more than expected to US$12 billion in February from a five-year high of US$16.3bn in January. India’s quarterly current account deficit (CAD) widened to 2% of GDP in 4QCY17, slightly less than expected, from 1.1% of GDP the previous quarter. The merchandise trade deficit led the widening, increasing to 6.6% of GDP (US$44.1bn) in 4Q17, in line with the monthly trade reports, led by increases in imports, particularly oil, while export growth remained weak.

Composite PMI dropped sharply in February, to 49.7 from 52.5 in January, largely due to weakness in services activity. India’s IP growth remained strong in January, printing at 7.5%. Sequentially, IP has been recovering as the drags from GST and demonetization have faded.

Center's fiscal deficit at the end of February stood at 120% (vs. 113% last year) of the budgeted annual deficit. State deficits continue to widen. Fiscal data for 15 of India’s largest states, accounting for 80% of GSDP (gross state domestic product), reveal that their consolidated state budget deficit has continued to widen over the last two years. The “Actual” consolidated deficit of these states rose from 2.5% of GSDP in FY16 to 2.9% of GSDP in FY17. Furthermore, the first estimate for FY18, reveals further widening to 3% of GSDP.

Fund Flows in Markets

FIIs were strong net equity buyers in March at US$2.1bn and reversed all the outflows witnessed in February at US$1.9bn. FII flows in debt markets are negative for the second consecutive month at US$1.1bn in March, the largest monthly outflow since December 2016. DIIs remain net equity buyers for the 12th consecutive month at US$728mn in March, post strong inflows at US$2.8bn in February. Mutual funds continue the strong momentum of inflows at US$1.2bn in March (vs. +US$2.5bn in February), the 20th consecutive month of net buying. Insurance funds turned net equity sellers at US$431mn in March '18.

Currency and Bond Markets

Benchmark 10 year treasury yields eased by a meaningful 33 bps towards the end of March to 7.4%. This was on the back of the Government’s decision to reduce the annual borrowing program for FY19E by Rs500B and change in the borrowing mix. Despite this rally, bond yields have risen by 100bps since August '17.

USDINR ended flat in March at 65.2, after a volatile month. Note the DXY depreciated by a marginal 0.7% to 90 over the last month. India’s FX reserves were largely stable at US$423bn.

Equity market review

Nifty declined 4% in March and underperformed other regional markets. Market weakness was driven by both local and global factors. Locally, high frequency data suggest that the growth recovery remains patchy. Stress on key macro variables continued to build, particularly as global crude oil prices surged 5%. Also, political sentiments in the country are turning choppy.

On the global front, key sources of volatility and downside for EM equities were the US Fed raising rates accompanied by a more hawkish forecast for the policy rate trajectory over CY18 & CY19 and the Trump Administrations’ protectionist measures and concerns of a trade war.

Over the month, consensus FY18E earnings estimates for the broad market were revised downwards by.1%. The street now estimates earnings growth of 10% to 11% for FY18 (E) for the MSCI India/Nifty indices.

Valuations for the Nifty at 24.6 times trailing earnings are at +1SD from historical averages seen over the last decade.

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 2018

  • 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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