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November 2022
#INVESTFORGOOD
CONVERSE
[Title to come]
[Sub-Title to come]
Metrics that matter NOW in Fixed Income
Date Strictly for Intended Recipients Only
* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
Agenda
Overview: Major Driver of Yields
Markets View: Analysing the market drivers
• Monetary Policy
• Fiscal policy
• Global scenario
• Others
DSP FI Framework: Our process
• DSP FI checklist
• Duration decision
• Duration allocation
• Asset allocation
DSP Fixed Income Universe: Our offering
• DSP Preferred funds with scenario
• DSP Active Funds
• DSP Money Market Funds
• DSP Passive Funds
2
Our View - Snapshot
➢ Phase 1: Rallies likely to be muted with reversals – currency risks on yields still not over
We had mentioned three reasons for yields to be under pressure in this quarter. But supply fears have eased. As the states
continue to borrow lesser, the expected fears of supply have reversed – making supply a reason for rally, rather than sell-off.
1. Rupee depreciation: While rupee has appreciated recently, but it is likely to come under pressure again. The capital
account inflows may not be sufficient to fund current account deficit.
2. Liquidity: We expect liquidity to remain tight unless the global central banks pause/ease and risks to currency evaporate.
3. Supply pressures: The lower SDL supply has eased the pressure on bonds. The supply in YTD FY23 is ~Rs. 1.5 lac cr. lesser.
This has made supply lesser than demand – leading to easing of pressure.
➢ Phase 2: Yields likely to consolidate and rally by Q4FY23
We continue to expect rally to occur in Q4FY23. The three reasons we mentioned remain:
1. RBI OMOs, as liquidity tightens RBI will have to increase the money supply and push in liquidity. Since FX asset purchase
are not looking likely, RBI will have to fill in the gap through domestic asset purchases, i.e. Government bonds.
2. Bond index inclusion chatter: By March 2023 JP Morgan will again revisit the index. Every iteration brings India’s
inclusion closer and is an inevitability sooner or later
3. Global central banks should be closer to end of rate hike cycle.
➢ Risk/Reward may favor debt investment in Q4FY23
Yields have rallied in past month. Yet, we advise to wait till Q4 to add duration. Why?
Because how much can 5-year bond rally from 7.10% when (i) overnight rates after next MPC is expected to be close to
6.25%-6.5% (ii) CPI is still high, (iii) rupee risks remain, (iv) risks to SDL supply are in Q4, and (v) election year budget is
coming?
Thus, risks seem to be lopsided towards wait-and-watch and invest in Q4FY23. Especially when the curve is flat.
Source: Internal; MPC – Monetary Policy Committee; OMO – Open Market Operations; SDL – State Development Loan; CPI – Consumer Price Index; YTD – Year To Date
Overview: Major drivers of yields
Monetary Policy Fiscal Policy Global Drivers Others
Inflation Supply Global Yields RBI Regime
• CPI still above target • Supply worries abated • Why is the gap between • Is there a divergence
levels at 6.77% US and India bond yield so between MPC members?
• SDL supply muted low?
• Likely to remain clouded • Focused on curtailing
• Taxes stagnant • US CPI falling, yet high
with uncertainties inflation
• Recent focus on currency
Demand
Growth Geopolitics
• Probability of RBI OMO
• Domestic activity resilient in Q4 high • Ukraine war extension Misc.
• High trade deficit due to • Banks SLR/NDTL over
weak global demand • Prep for 2024 elections
30%
Bond Inclusion/FPI
Commodities
Currency/CAD/BOP • Binary event (CY23)
• Oil prices volatile
• Current Account Deficit • Could absorb supply &
still high support currency in FY24 • Other Commodities flat
• Capital outflows continue • Winter could lead to
higher energy prices
• Negative real rates
Takeaway:
Risks have mildly bearish bias, with sticky inflation and aggressive tightening by global central banks
Source – Internal CAD – Current Account Deficit; BoP – Balance of Payment; SLR – Statutory Liquidity Ratio; SDL – State Development Loans; NSSF: National Small 4
Saving Fund; RBI: Reserve Bank of India; G-Sec: Government Securities; CPI: Consumer Price Index; NDTL – Net Demand & Time LiabilitiesInflation: A difficult beast to predict
➢ CPI below 7% led by favorable base effects ➢ How closely do yields track inflation projection?
• Oct 22 CPI at 6.77% ( sharply ↓ from 7.4% in Sep 22) • CPI forecasts have low predictive power for Indian Yield
• Sequential uptick of 0.8% vs 0.6% in Sep’22 • The 1-Year future yields do not have much correlation
• Food inflation pushing inflation higher driven by cereals to with 1-Year future CPI forecasts
and vegetables • Primarily because CPI projections rarely get realized in
• Near term expected to remain volatile actual CPI
➢ CPI will have wide variance due to base effect • Since large part of CPI is volatile with low predictive
power – food and oil
• Scenario if CPI were to increase at 5% YoY going forward:
• CPI to be 6.4% in Nov 22, and sharply rise to 8.2% in
Feb 23
• RBI’s Q4FY23 projection of 5.8% to hold only if there is
marginal deflation
CPI Forecasted Inflation vs Bond Yields
8%
8.5
7% 7.5
6.5
6%
5.5
in %
5% 4.5
3.5
4%
2.5
Jun-22
Aug-22
Dec-22
Jun-23
Apr-22
Feb-23
Apr-23
Oct-22
1.5
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Apr-20
Apr-18
Apr-19
Apr-21
Apr-22
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
0.5% MoM (6% annualized) 0.41% MoM (5% annualized)
0.33% MoM (4% annualized) RBI Projections 10Y IGB (%) 1Yr CPI Forecast (1 Yr Ago; in %) Actual CPI (%)
Actuals
Takeaway:
In our view, Inflation to remain volatile due to base effect.
Source: RBI, CSO ; CPI: Consumer Price Inflation;; RBI: Reserve Bank of India 5Growth: Domestic growth hitherto resilient, risks of global slowdown persist
➢ Domestic growth resilient, though risks remain ➢ How closely do yields track growth?
• Both manufacturing and services PMI have remained in
• Yields have usually tracked GDP growth, with
expansion at 55.3 and 55.1 respectively
correlation being stronger when growth slows,
• Healthy tax collections; barring
• GST collections have crossed INR 1.5 tn in October 22 • 2013, when rupee depreciation and debt outflow
• Despite higher inflation, GST undershooting Nominal growth • 2017, during demonetization
➢ Risks of global slowdown are playing out
• Trade deficit high at USD 26.7bn in October-22
• Exports de-grew by -16% yoy due to decline in global demand
20 10
India PMI Index 9
15
70 9
60 10 8
50 8
5
40 7
30 0 7
20 6
-5
10 6
0 -10 5
Apr-12
Apr-15
Apr-18
Apr-21
Jan-13
Jan-16
Jan-19
Jan-22
Oct-10
Jul-11
Oct-13
Jul-14
Oct-16
Jul-17
Oct-19
Jul-20
Oct-22
Jun-20
Jun-21
Jun-22
Feb-22
Feb-20
Feb-21
Oct-19
Oct-20
Oct-21
Oct-22
PMI Mfg PMI Ser Real GDP % YoY (LHS) 10Y IGB % (RHS)
Takeaway:
Growth while strong could suffer from global slowdown shocks
GDP: Gross Domestic Product; PMI: Purchasing Managers’ Index; GST: Goods and Service Tax; IGB: India Government Bond; Source: Bloomberg 6Comfort on currency – Optimism?
➢ RBI FX reserves stand at USD 545bn ➢ The economic environment in 2013 was similar to
• Forex adequacy ratio has ↓ significantly 2020
• Majority of the change in reserves caused by valuation • Low real rates with High Oil prices, High Current
Account Deficit & High Inflation
• Led to sharp depreciation of rupee – and rate hikes
➢ RBI FX Reserve / IMF FX adequacy ratio declined sharply
• Reserve buffer of ~USD 30 billion to reach 2013 and 2018
levels (~150% ratio) ➢ However, contrasting 2013 with current scenario
• Import cover is higher, albeit steadily declining, 8.6
months in Oct 22 vs. 7 months in 2013
➢ Yields may react adversely if RBI FX reserve reaches USD
• Global real rates are also negative, thus India is not an
500 bn outlier
700 240% Real rate vs USD/INR
600 220%
500 200% 85 6
400 180% 80 4
300 160% 75 2
200 140% 70
In %
0
100 120% 65
0 100% 60 -2
2006
2009
2012
2015
2018
2021
2002
2003
2004
2005
2007
2008
2010
2011
2013
2014
2016
2017
2019
2020
2022
55 -4
50 -6
IMF Reserve Adequacy Metric for India (LHS)
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Oct-16
Oct-19
Oct-12
Oct-13
Oct-14
Oct-15
Oct-17
Oct-18
Oct-20
Oct-21
Oct-22
India Forex Reserves USD billion (LHS)
Fx Adequacy Ratio (RHS) USD INR (LHS) Real Rate (RHS)
Takeaway:
With depleting foreign exchange reserves, RBI’s ability to intervene in forex market is lower
RBI: Reserve Bank of India; IMF: International Monetary Fund; US FED: US Federal Reserve; Source: RBI, Bloomberg 7Rupee depreciation: Tail risks remain
➢ Rupee and Inflation have a strong correlation ➢ RBI has in past acted swifter to protect currency than
• There is a strong co-relation between rupee movement inflation
and CPI (barring 2018-2019) • In 2013 and 2018 RBI increased rates when rupee
depreciated
• Reaffirms that India bears risk of imported inflation • In 2018, in inflation was within RBI’s target levels
• RBI intervention visibly reduced as USD/INR touched
lows of 83 ➢ Risks of RBI intervening in rates to protect currency
increased – DXY will be important to watch
CPI (YoY %) LHS
USD INR (YoY %) RHS Repo CPI USD INR (RHS)
14% 20% 85
11 80
12% 15%
10% 9 75
10%
70
8% 7
In %
5% 65
6%
5 60
0%
4% 55
-5% 3
2% 50
0% -10% 1 45
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Apr-14
Apr-16
Apr-15
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
Takeaway:
After recent currency slide, the risks of RBI influencing currency through policy rates increased
MPC – Monetary Policy Committee; CPI: Consumer Price Inflation ; Source: Bloomberg 8Overview: Major drivers of yields
Monetary Policy Fiscal Policy Global Drivers Others
Inflation Supply Global Yields RBI Regime
• CPI still above target • Supply worries abated • Why is the gap between • Is there a divergence
levels at 6.77% US and India bond yield so between MPC members?
• SDL supply muted low?
• Likely to remain clouded • Focused on curtailing
• Taxes stagnant • US CPI falling, yet high
with uncertainties inflation
• Recent focus on currency
Demand
Growth Geopolitics
• Probability of RBI OMO
• Domestic activity resilient in Q4 high • Ukraine war extension Misc.
• High trade deficit due to • Banks SLR/NDTL over
weak global demand • Prep for 2024 elections
30%
Bond Inclusion/FPI
Commodities
Currency/CAD/BOP • Binary event (CY23)
• Oil prices volatile
• Current Account Deficit • Could absorb supply &
still high support currency in FY24 • Other Commodities flat
• Capital outflows continue • Winter could lead to
higher energy prices
• Negative real rates
Takeaway:
Risks have mildly bearish bias, with sticky inflation and aggressive tightening by global central banks
Source – Internal CAD – Current Account Deficit; BoP – Balance of Payment; SLR – Statutory Liquidity Ratio; SDL – State Development Loans; NSSF: National Small 9
Saving Fund; RBI: Reserve Bank of India; G-Sec: Government Securities; CPI: Consumer Price Index; NDTL – Net Demand & Time LiabilitiesDemand-Supply: Lower SDL issuances have reduced the concern
➢ Banks SLR holdings consistently above 30% ➢ G-sec/SDL Demand supply worry subdues
• Only during the Covid and Demonetization did the levels
reach so high • According to our workings, the gap in demand supply is
reduced to ~Rs. 22 tn. for FY23
• However, during those periods' liquidity was in surplus
• Lower SDL issuances have alleviated supply concerns
➢ Banks purchases may reduce, though may not revert to
historical levels
• Total Return Swap and FRA (Forward Rate Agreement)
related bank purchases may keep SLR holdings elevated
for banks
• Yet, purchases of similar quantum as in H1FY23 by banks
seem unlikely in H2FY23 DSP Demand Supply workings (Rs tn)
Supply For FY23 Demand For FY23
Gross Borrowing 14.21 Banks 7.39
Banks SLR (in %) IGB redemption 3.13 Insurance 4.08
Net G-sec Borrowing 11.08 PFs 1.60
35
34
Gross SDL Borrowing 7.30 FPIs 0.00
33 SDL Redemption 2.2 MFs 0.70
32 Net SDL Borrowing 5.1 Corporates 0.50
31 NSSF -1.7 Total excl RBI 14.26
30
Total Supply (A+B) 14.48 Excess Supply 0.22
29
28
27
Nov-14
Nov-19
Dec-16
Dec-21
Jun-14
Jun-19
Jan-14
Apr-15
Sep-15
Feb-16
May-17
Mar-18
Aug-18
Jan-19
Apr-20
Sep-20
Feb-21
May-22
Oct-17
Oct-22
Jul-16
Jul-21
Takeaway:
Lower SDL Issuances have assuaged supply fears and reigned in bond yields
CIC – Currency In Circulation; OMO – Open Market Operations, SLR – Statutory Liquidity Ratio; G-Sec – Government Securities; SDL – State Development Loan 10
Source: Bloomberg, DBIE, Internal estimatesMoney markets too are currently driven by demand /supply
3,00,000 5,00,000
CD Supply CP Supply
2,50,000 4,00,000
2,00,000
3,00,000
1,50,000
1,00,000 2,00,000
50,000 1,00,000
0 0
Feb-21
Sep-21
May-21
Oct-21
Apr-22
Oct-22
Jan-21
Mar-21
Dec-21
Jan-22
Mar-22
Aug-22
Jun-21
Jun-22
Jul-21
Jul-22
Apr-21
May-21
Apr-22
May-22
Oct-21
Oct-22
Jan-21
Aug-21
Nov-21
Jan-22
Aug-22
Feb-21
Jul-21
Feb-22
Jul-22
Issued during fortnight Total amt O/s Issued during fortnight Total amt O/s
25.0%
Credit & Deposit Growth (Y-o-Y)
20.0%
15.0%
10.0%
5.0%
0.0%
May-21
Apr-21
Apr-22
Dec-21
May-22
Jan-21
Mar-21
Aug-21
Jan-22
Mar-22
Aug-22
Jun-21
Oct-21
Jul-21
Jun-22
Oct-22
Nov-21
Jul-22
Feb-21
Sep-21
Feb-22
Sep-22
Credit Growth Deposit Growth Investment Growth
Takeaway:
Credit growth disproportionately higher than deposit growth
Banking aggregates have started turning unfavorable
Source: RBI 11Demand-Supply: Supply Worries Abated
➢ SDL issuance picked up in Oct-22 ➢ Yields track RBI OMO purchases
• Lower SDL issuance by 33% in H1FY23 (~ ₹ 2.7tn vs ₹ 4tn • Yields have strong correlation with RBI OMO actions
calendar)
• OMO purchases lead to lower yields, vice-versa
• Lower only by 6% against calendarized in October 2022
• Demand/Supply mismatch is usually filled in by RBI
• Q3FY23 borrowing at ₹ 2.5tn
➢ Central government supply worries continue
• Govt. cut its borrowing plan by ₹ 10k crore, yet the supply
for the year is still large
• Incremental risks balanced
• Risks from fuel duty cuts, increased subsidies offset by
more than budgeted tax revenues
90,000 % G-Sec Yield (RHS) 3m rolling OMO (Purchase - Sale) LHS INR cr
SDL Supply: Indicative vs Actual
80,000 20 9.5
x 10,000 INR crore
70,000 9
15
60,000 8.5
In INR crore
10 8
50,000
7.5
40,000 5
7
30,000 0 6.5
20,000 6
-5
10,000 5.5
- -10 5
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
May-22
Jun-22
Apr-22
Aug-22
Sep-22
Oct-22
Jul-22
Takeaway:
Supply worries to continue in the second half
SDL – State Development Loan; NSSF – National Small Savings Fund; GST – Goods & Services Tax; Source: Bloomberg; CCIL 12Overview: Major drivers of yields
Monetary Policy Fiscal Policy Global Drivers Others
Inflation Supply Global Yields RBI Regime
• CPI still above target • Supply worries abated • Why is the gap between • Is there a divergence
levels at 6.77% US and India bond yield so between MPC members?
• SDL supply muted low?
• Likely to remain clouded • Focused on curtailing
• Taxes stagnant • US CPI falling, yet high
with uncertainties inflation
• Recent focus on currency
Demand
Growth Geopolitics
• Probability of RBI OMO
• Domestic activity resilient in Q4 high • Ukraine war extension Misc.
• High trade deficit due to • Banks SLR/NDTL over
weak global demand • Prep for 2024 elections
30%
Bond Inclusion/FPI
Commodities
Currency/CAD/BOP • Binary event (CY23)
• Oil prices volatile
• Current Account Deficit • Could absorb supply &
still high support currency in FY24 • Other Commodities flat
• Capital outflows continue • Winter could lead to
higher energy prices
• Negative real rates
Takeaway:
Risks have mildly bearish bias, with sticky inflation and aggressive tightening by global central banks
Source – Internal CAD – Current Account Deficit; BoP – Balance of Payment; SLR – Statutory Liquidity Ratio; SDL – State Development Loans; NSSF: National Small 13
Saving Fund; RBI: Reserve Bank of India; G-Sec: Government Securities; CPI: Consumer Price Index; NDTL – Net Demand & Time LiabilitiesGlobal Central Banks action & USD/INR driving yields?
➢ Why have Global Central Banks raised rates?
➢ Are rupee risks impacting Indian yields?
• High global inflation despite slowdown/potential recession
• US October CPI at 7.7% showed some signs of cooling off ➢ Rupee has weakened substantially, risks to upside
• Currently US Fed Funds “terminal rate” projected at 5.0% • Currency tail risks may materialize
➢ Are spreads of UST and IGB low? • If Fed tapering impact worsens,
• Historical spread of 10 Year US and 10 Year bonds was 5% • Trade deficit remains elevated then tail risks could
but has narrowed to 3.25% come to play
• But, bond yield spread mimics the inflation and policy rate
differential.
• RBI policy rate is low & has not tracked inflation spread ➢ Oil impact on yields taken a backseat last month
• 10Y yields seem to have priced in the inflation spread
Normalized Chart (%)
1.2 1.1
1.2
1.2 1.1
1.0
Normalized data (%)
1.1
0.8 1.1 1.1
0.6 1.0 1.1
0.4 1.0 1.0
0.9
0.2 1.0
0.9
0.0 0.8 1.0
Oct-21
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-22
Jun-22
Jun-22
Sep-22
Apr-22
Apr-22
Apr-22
May-22
May-22
Aug-22
Aug-22
Sep-22
Sep-22
Oct-22
Oct-22
Jul-22
Jul-22
Normalised Central Bank Policy rate spread
IGB10Y (RHS) Brent Crude (LHS) USD INR (RHS)
Normalised Inflation Spread
Normalised Spread (10Y IGB-10Y UST)
Takeaway:
India bond yields more driven by domestic factors than tracking global yields
IGB – Indian Govt. Bond, UST – US Treasury yields; CAD – Current Account Deficit; Source: Bloomberg, Internal Estimates 14Overview: Major drivers of yields
Monetary Policy Fiscal Policy Global Drivers Others
Inflation Supply Global Yields RBI Regime
• CPI still above target • Supply worries abated • Why is the gap between • Is there a divergence
levels at 6.77% US and India bond yield so between MPC members?
• SDL supply muted low?
• Likely to remain clouded • Focused on curtailing
• Taxes stagnant • US CPI falling, yet high
with uncertainties inflation
• Recent focus on currency
Demand
Growth Geopolitics
• Probability of RBI OMO
• Domestic activity resilient in Q4 high • Ukraine war extension Misc.
• High trade deficit due to • Banks SLR/NDTL over
weak global demand • Prep for 2024 elections
30%
Bond Inclusion/FPI
Commodities
Currency/CAD/BOP • Binary event (CY23)
• Oil prices volatile
• Current Account Deficit • Could absorb supply &
still high support currency in FY24 • Other Commodities flat
• Capital outflows continue • Winter could lead to
higher energy prices
• Negative real rates
Takeaway:
Risks have mildly bearish bias, with sticky inflation and aggressive tightening by global central banks
Source – Internal CAD – Current Account Deficit; BoP – Balance of Payment; SLR – Statutory Liquidity Ratio; SDL – State Development Loans; NSSF: National Small 15
Saving Fund; RBI: Reserve Bank of India; G-Sec: Government Securities; CPI: Consumer Price Index; NDTL – Net Demand & Time LiabilitiesRecency bias: Is 10-Year yield high?
➢ Yields had been been lower only during generational
events: 10Y IGB yield (%)
• Global Financial Crisis (2008) 9
• Demonetization (2016/17) 8.5
Only outlier
• Covid pandemic (2020/21) 8
Demonetization
7.5
Irrespective of levels of inflation, GDP, currency and demand/supply Covid
dynamics, the yields have usually been higher than the current levels – 7
unless there is an event risk. 6.5
Sell-off always end
6 above 8%
➢ Is bond inclusion the next such event?
5.5
If bond inclusion occurs, it could end up being an event that leads to
Oct-11
Oct-16
Oct-10
Oct-12
Oct-13
Oct-14
Oct-15
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
rally, despite headwinds. However, with announcement pushed to
next year near term impact unlikely.
Takeaway:
While recently yields have spiked, but past data suggests that current yield levels are not extremely high
Source – Internal, Bloomberg 16Portfolio Creation: Multi-step process
DSP Fixed Income Funds follow a defined methodology for fund portfolio construction
Fund’s Risk
Appetite
Empirical
Analysis
FINAL PORTFOLIO
Step I: Step II: Step III:
Fundamental Decide Fund Decide Duration Asset Market
Market Views Duration distribution: Allocation Risk Filter
Boundary Barbell/Bullet/Ladder
Relative value
analysis
Asset Spread
analysis
➢ We apply market risk filter which can help the Fund Managers not to take extreme risks. Thus, Value at Risk is limited by
ensuring the positions are balanced.
Investment approach / framework/ strategy mentioned herein is currently followed & same may change in future depending on market conditions & other factors. 17DSP FI Framework checklist : What is our view on yields movement?
Drivers 1Y 5Y 10Y >10Y Remarks
Monetary Policy Negative Negative Neutral Neutral
Inflation Neutral Neutral Neutral Neutral Volatile Inflation may be priced in
Growth Positive Positive Positive Positive Lower growth adds chances of lower peak rates
CAD/BOP/ CAD was at 2.8% in Q1FY23. While it will ease, but absolute still high.
Currency Negative Negative Negative Negative Import cover reducing sharply
Fiscal Policy Neutral Neutral Negative Neutral
Expenditure matched by increased taxes
Current supply will put pressure. Long bonds have demand.
Supply Neutral Negative Neutral Negative SDL supply continues to be anaemic.
RBI may conduct OMO in H2.
Banks demand should wane after large HTM purchase in H1
Demand Neutral Neutral Negative Neutral Expect higher deposit as the credit to govt and pvt. sector increases
FPI Flows Neutral Neutral Neutral Neutral No meaningful flows expected in H2 until bond index inclusion
Global Negative Negative Neutral Neutral
Global yields Negative Neutral Neutral Neutral Policy rates not in sync, but 10Y adjusted to global markets
Geopolitics Neutral Neutral Neutral Neutral Risks balanced
Commodities Neutral Neutral Neutral Neutral Risks balanced
Others Negative Neutral Neutral Neutral
RBI wary of inflation.
RBI Regime Negative Neutral Neutral Neutral Increased currency monitoring
FY24 issuances will be sizeable
Miscellaneous Neutral Neutral Neutral Neutral Unlikely RBI/Govt will be tolerant on inflation entering 2024
Mildly Mildly Mildly Mildly
Total Bearish Bearish Bearish bearish
Takeaway:
Markets should consolidate – rallies will be muted and reversed – currency risks not over.
18Step I - Duration decision: How much of yield movement is priced in?
➢ In short tenor the bearishness is priced in
India Sovereign Forward Curve*
• Upside risks are largely priced in –seen in the sharp uptick
in short tenor in forward curve
7.6
• The roll-down benefit negates the impact of yield uptick
7.4
➢ In long tenor, the bearishness is partially priced in
Yield %
7.2
• The longer tenor forward curve is pricing just 5bp-10bp
7 up-move. We believe not all bearishness is priced in.
6.8
➢ Where to invest?
6.6
1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 7 Yr 9 Yr 10 Yr 30 Yr
• Short tenor yields have moved higher, and have already
priced in further rate hikes.
Current 3 Mo Ahead 1 Yr Ahead 3 Yr Ahead • To find the best maturity to invest, one needs to take into
account higher price risk in longer duration. This is
covered in next slide.
The chart shows how much yield rise is already priced in the current
curve. Large gap between the current yield and forward yield shows
that yield rise spike is priced in – and yield uptick may not lead to
losses. Similarly small gap means that the market is not pricing
yields to rise significantly.
Maturity 1Y 5Y 10Y >10Y Remarks
Mildly Mildly Mildly Mildly
What’s expected (Total) From previous slide
Bearish Bearish Bearish bearish
Short tenor has priced in rate hikes, but longer tenor has
Is expectation (above row) priced in ? Yes Partially Partially Partially
only partially priced in expected yield rise
Source – Bloomberg; *as on 10th Nov 2022 19Step II - Duration distribution: Relative Value & Scenario Analysis
After assessing (i) what’s expected (slide #18), and (ii) what’s priced in (slide #19) , we determine relative value between the
separate maturities. This helps determine the best investment maturity after incorporating duration risks.
How do we do this?
• Calculate the expected returns based on three scenarios
‣ Our Base Case
‣ Bearish Case
‣ Bullish Case
• Thereafter calculate the expected payoff for each maturity based on
‣ Summation of expected returns for each scenario and its probability
Our preferred
Base Scenario Bullish Scenario Bearish Scenario
maturities
Probability 50% 25% 25%
Rise in yield Rise in yield Rise in yield
HPR for 3 HPR for 3
Maturity expectation in HPR for 3 month expectation in expectation in next ∑ Probability*HPR
month month
next 3 month next 3 month 3 month
1y 0.15% 6.97% -0.10% 7.68% 0.40% 6.26% 6.97%
2y 0.10% 6.75% -0.20% 8.60% 0.30% 5.53% 6.91%
3y 0.05% 6.69% -0.25% 9.49% 0.25% 4.84% 6.93%
5y 0.10% 5.59% -0.25% 11.51% 0.25% 3.08% 6.44%
10y 0.10% 4.81% -0.25% 13.70% 0.30% -0.17% 5.79%
The above table is for illustration purpose only
Source – Internal Estimates *HPR – Holding Period Returns. Returns are annualised; 20Step III – Asset Allocation: Corporate bonds vs. sovereign bonds
➢ Demand for corporate bond has been exceeding the ➢ The corporate bond spreads are low
supply keeping the spreads low • The spreads across all tenors have compressed
• The issuance has increased since low of 2020 significantly.
o The issuances so far (till Sep) in FY23 have • We expect long the spreads to remain narrow
increased to Rs. 2.50 lac cr • But with no extra yield, we have lower allocation
• Share of AAA and increased to long tenor corporate bonds.
o But with govt. on path to reduce off-balance sheet • Tighter liquidity, and high credit offtake could
borrowing, issuances may not increase mean that CD (Commercial Deposit) issuances
meaningfully from banks will remain elevated.
• The spreads in lower maturity may widen
Corporate Bond Issuances
500
6,00,000
400
5,00,000
300
Spreads in bps
4,00,000
INR Crore
3,00,000 200
2,00,000 100
1,00,000
0
-
Nov-14
Sep-15
Aug-18
Nov-19
Sep-20
Dec-16
May-17
Jan-19
Jun-19
Dec-21
May-22
Feb-21
Apr-15
Feb-16
Mar-18
Apr-20
Oct-17
Oct-22
Jul-16
Jul-21
2017-18 2018-19 2019-20 2020-21 2021-22 YTD FY23 -100
AAA AA A A1 BBB BB B C NA
1Y Spread 5Y Spread 10Y Spread
Takeaway:
In our view, corporate spreads to remain narrow in medium term – may widen in long term. Prefer limited
exposure in corporate bonds until spreads widen
Source – Bloomberg, CCIL 21Our View - Snapshot
➢ Phase 1: Rallies likely to be muted with reversals – currency risks on yields still not over
We had mentioned three reasons for yields to be under pressure in this quarter. But supply fears have eased. As the states
continue to borrow lesser, the expected fears of supply have reversed – making supply a reason for rally, rather than sell-off.
1. Rupee depreciation: While rupee has appreciated recently, but it is likely to come under pressure again. The capital
account inflows may not be sufficient to fund current account deficit.
2. Liquidity: We expect liquidity to remain tight unless the global central banks pause/ease and risks to currency evaporate.
3. Supply pressures: The lower SDL supply has eased the pressure on bonds. The supply in YTD FY23 is ~Rs. 1.5 lac cr. lesser.
This has made supply lesser than demand – leading to easing of pressure.
➢ Phase 2: Yields likely to consolidate and rally by Q4FY23
We continue to expect rally to occur in Q4FY23. The three reasons we mentioned remain:
1. RBI OMOs, as liquidity tightens RBI will have to increase the money supply and push in liquidity. Since FX asset purchase
are not looking likely, RBI will have to fill in the gap through domestic asset purchases, i.e. Government bonds.
2. Bond index inclusion chatter: By March 2023 JP Morgan will again revisit the index. Every iteration brings India’s
inclusion closer and is an inevitability sooner or later
3. Global central banks should be closer to end of rate hike cycle.
➢ Risk/Reward may favor debt investment in Q4FY23
Yields have rallied in past month. Yet, we advise to wait till Q4 to add duration. Why?
Because how much can 5-year bond rally from 7.10% when (i) overnight rates after next MPC is expected to be close to
6.25%-6.5% (ii) CPI is still high, (iii) rupee risks remain, (iv) risks to SDL supply are in Q4, and (v) election year budget is
coming?
Thus, risks seem to be lopsided towards wait-and-watch and invest in Q4FY23. Especially when the curve is flat.
Source: Internal; MPC – Monetary Policy Committee; OMO – Open Market Operations; SDL – State Development Loan; CPI – Consumer Price Index; YTD – Year To DateWhat will make us change our view
➢ What will make us increase duration earlier in Q3FY23
• In case currency remains stable, we may purchase duration earlier as the tail risks may not materialize (possible).
• If RBI announces OMO purchases earlier than expected (unlikely)
• If global recession prompts central banks to become less hawkish (possible).
• If govt announces ease in FPI process – an indicator for bond global index inclusion (unknown).
➢ What will make us delay adding duration even in Q4FY23
• In case currency fears percolate to debt markets and lead to panic (possible).
• If liquidity becomes tighter, and RBI does not show intent to ease it (likely).
• If global inflation keeps the central banks in hawkish trajectory (possible).
• If bonds global index inclusion does not occur (unknown)
Investment approach / framework/ strategy mentioned herein is currently followed & same may change in future depending on market conditions & other factors.DSP Scenario analysis and preferred Funds – No change
Fund expectation is highlighted in green background.
Positive Negative
Monetary Policy As macro data softens, RBI pauses and indicates growth
supportive measures like liquidity etc. Currency fears get realized, trade deficit high. RBI hawkish
Positive Negative Positive Negative
Supply reduced as taxes, NSSF Banks reduce SLR/NDTL ratio Supply reduced as taxes, Banks reduce SLR/NDTL ratio
increase. SDL make up for lower H1 NSSF increase. SDL make up for lower H1
Fiscal Policy
States borrow lesser than the issuances States borrow lesser than issuances
calendar Taxes unable to offset higher the calendar. Taxes unable to offset higher
RBI OMO purchases in Q4 subsidies RBI OMO purchases in Q4 subsidies
Positive Negative Negative
Positive Positive Positive
unlikely unlikely Negative
Negative
- Inflation scenario - scenario -
falls. - Inflation falls. - Inflation falls. - Inflation falls.
that global that global Global
Global - Commodity - Commodity - Commodity Global Inflation - Commodity
central banks central banks Inflation
hawkish, but Fall hawkish, but Fall remains Fall
Fall remains
MPC turns - Central banks MPC turns - Central banks elevated - Central banks
- Central elevated
banks pause dovish pause dovish pause pause
Long Tenor bond Rally Sell-off Flat Sell-off
Short Tenor bond Rally Flat Sell-off Sell-off
DSP 10Y G-Sec DSP Low
DSP Short term Fund DSP Savings Fund
Fund Duration Fund
DSP Nifty SDL
Plus G-Sec Jun DSP Short Term DSP Nifty SDL Plus G-Sec Jun 2028
Recommended DSP Low Duration Fund
2028 30:70 Index Fund 30:70 Index Fund
funds Fund
DSP Strategic DSP Strategic
DSP Strategic Bond Fund DSP Ultra-Short Fund
Bond Fund DSP Bond Fund
DSP Savings
DSP Bond Fund DSP Government Securities Fund DSP Strategic Bond Fund
Fund
Source – Internal NDTL- Net Demand and Time Liabilities; FPI – Foreign Portfolio Investment; SLR – Statutory Liquidity Ratio; SDL – State Development 24
Loans; NSSF: National Small Saving Fund; RBI: Reserve Bank of India; G-Sec: Government SecuritiesDSP Fixed Income Universe
25DSP Fixed Income Fund Universe (Active Funds)
7.70%
7.60%
DSP Credit Risk Fund
7.50%
7.40%
7.30% DSP Bond Fund
YTM (%)
DSP Short Term Fund
7.20%
DSP Banking & PSU Debt Fund
7.10%
DSP Low Duration Fund
7.00%
6.90% DSP Strategic Bond Fund
DSP Floater Fund
6.80%
DSP Government Securities Fund
6.70%
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50 7.00
Mac. Duration
as on 31st October 2022;
the horizontal bars represent the duration range that we intend to keep. The ranges are wide currently as we want to prepare for binary decision of bond inclusion
the horizontal lines are regulatory / Fund’s operative duration boundary
• The dots is Macaulay Duration of funds as of 31st October 2022
Investment approach / framework/ strategy mentioned herein is currently followed & same may change in future depending on market conditions & other factors. 26DSP Bond Fund Duration: 3.13 years
7.60%
• The Fund is a medium-term fund which has a 7.50%
Macaulay duration of between 3 to 4 years.
• It is meant for medium-term investors who 7.40%
want to take interest rate risk associated with
longer-term papers, but not take significant
credit risks. 7.30%
YTM (%)
YTM: 7.28%
• The fund manager intends to invest in bonds
by analyzing value in various points in the 7.20%
yield curve and credit spreads.
• The fund will have a mix of GSEC, SDLs and 7.10%
highly rated corporate bonds, and generally
will not invest in papers beyond 10 years.
• Basis current market view, the fund has a 7.00%
duration of ~ 3.2 years, and intends to run in
a Macaulay duration boundary between 3.1y-
6.90%
3.6y in current market conditions.
2.5 3 3.5 4 4.5
Macaulay Duration (years)
Strategy boundary Regulatory boundary
3.1 – 3.6 years 3 – 4 years
Source: Internal; Data as on 31/Oct/22DSP Short Term Fund Duration: 1.63 years
7.50%
• The Fund has a regulatory duration boundary 7.40%
of 1y – 3y
• The fund is meant for investors who do not 7.30%
want extreme risks. The fund’s duration
boundary ensures that the duration risk is YTM: 7.25%
curtailed. 7.20%
YTM (%)
• For now, the fund intends to maintain
duration between 1.5y – 2.25y. The fund may 7.10%
duration as yields rise, as yields peak.
• The fund intends to optimizes returns by
playing between corporate and G-sec spreads 7.00%
and take strategic and tactical duration calls
• Currently the fund has no investment in 6.90%
lower than AAA rated assets. The fund can invest
up to 20% in AA+ rated assets
6.80%
• The fund usually avoids investing in more 0.5 1 1.5 2 2.5 3 3.5
than 5-yr maturity papers – unless few days Macaulay Duration (years)
tactical play.
Strategy boundary Regulatory boundary
1.5 – 2. 25 years 1 – 3 years
Source: Internal; Data as on 31/Oct/22DSP Low Duration Fund
Duration: 0.54 years
7.30%
7.20%
• The Fund operates in a duration range of 6-
12 months
7.10%
• It is meant for investors, who want to intend
to earn higher returns, yet not expose YTM: 7.09%
themselves to significant interest rate risks. 7.00%
• The fund intends to maintain duration
YTM (%)
between 0.5y-0.85y currently, and may increase 6.90%
duration as fund manager gets comfort on
pause in RBI actions and ease in supply 6.80%
pressures from bank CDs.
• The fund intends to invest in a mix of CPs, 6.70%
CDs, AAA Corporate Bonds and sovereign
securities.
6.60%
• The fund intends to avoid any papers beyond
5-year maturity.
6.50%
0.25 0.75 1.25
Macaulay Duration (years)
Strategy boundary Regulatory boundary
0.50 – 0.85 years 0.50 – 1 years
Source: Internal; Data as on 31/Oct/22DSP Strategic Bond Fund
Duration: 0.70 years
7.20%
• The fund is driven by the principle of running
7.15%
a strategic boundary based on medium term
view.
7.10%
• The fund is meant for investors who want to
leverage the interest rate cycles and are willing to 7.05%
be patient.
7.00%
• The DSP Strategic Bond Fund sharply cut the
YTM (%)
duration as bond index inclusion is delayed. 6.95%
• Based upon the above philosophy, the
Strategic bond fund is running lower duration as 6.90%
currency and supply issues remain. YTM: 6.88%
6.85%
• Given the current rates volatility, the fund
could operate in a wider duration range of 0.5y- 6.80%
4.5y.
• The fund intends to add duration by end of 6.75%
H2FY23 as we expect yields to peak by then.
6.70%
• The current duration will most probably 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7
increase every month, such that by end of FY23 Macaulay Duration (years)
the fund is at a duration greater than 4Y.
Strategy boundary Regulatory boundary
0.5 – 4.5 years No boundary
Source: Internal; Data as on 31/Oct/22DSP Banking & PSU
Debt Fund Duration: 1.50 years
7.60%
7.50%
• The fund is suitable for investors willing to
leverage duration and the term premium. 7.40%
• Regarding the duration movement, the fund
can be thought of as mix of the Short-Term Fund 7.30%
and Bond Fund. In times of rising rates, the fund
YTM (%)
moves to duration of Short-Term Fund, else 7.20%
towards Bond Fund.
• The fund will currently run duration between 7.10%
YTM: 7.13%
1y and 2y.
• The fund will add duration probably in next 6 7.00%
months as we expect yields to peak in H2FY23.
• The fund is actively managed with duration 6.90%
calls as it has no regulatory duration boundary.
Yet, the fund maintains its duration between the
strategy duration of 1-2 Y. 6.80%
0.5 1 1.5 2 2.5 3 3.5 4
• The fund intends to invests in AAA Banking & Macaulay Duration (years)
PSU bonds (minimum 70%) as well as sovereign
bonds (maximum 30%).
Strategy boundary Regulatory boundary
1 - 2 years No boundary
Source: Internal; Data as on 31/Oct/22DSP Government
Securities Fund Duration: 1.61 years
7.50%
7.30%
• The fund is meant for investors who want to
leverage the changing market dynamics and want
7.10%
the fund manager to tide through the changing
yields
6.90%
YTM (%)
• The DSP Government Securities Fund is
running a duration of 1.5 - 4 years. YTM: 6.75%
6.70%
• The fund, while maintaining the strategic
limits, is more reactive to tactical moves and can
6.50%
continue to actively manage duration as market
dynamics change.
6.30%
• The fund only invests in Government
Securities, State Development Loans and T-bills. 6.10%
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Macaulay Duration (years)
Strategy boundary Regulatory boundary
1.5 – 4 years No boundary
Source: Internal; Data as on 31/Oct/22DSP Credit Risk Fund Duration: 1.58 years
• The fund’s duration ranges between 1 - 3 8.10%
years and aims at capture steady accrual with
better risk adjusted returns
7.90%
• The Credit Risk Fund has a stipulated
minimum percentage of investments in AA and
below rated corporate bonds (of 65%, but could 7.70%
be lower depending on liquidity calculations).
YTM: 7.60%
• The fund is meant for investors who are
YTM (%)
7.50%
comfortable in assuming credit risk in line with
the scheme profile. This includes, besides credit
risk, liquidity risk (impact costs) and spread risk 7.30%
(widening of credit spreads).
• The fund endeavours to invest in Companies 7.10%
with reputed Indian groups so that there is
sufficient liquidity for the portfolio.
6.90%
• Governance of the underlying
Companies/Parent groups will be given
importance. 6.70%
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Macaulay Duration (years)
Strategy boundary Regulatory boundary
1.0 – 2.5 years No boundary
Source: Internal; Data as on 31/Oct/22DSP Floater Fund Duration: 0.85 years
7.30%
7.20%
• The DSP floater fund is running a duration of
0.9 yrs.
7.10%
• Currently, the floater fund is running 7.00%
diversified strategy (i) 2024 FRB (Floating Rate
Bond), (ii) 1 Yr T-bill, and (iii) Long 3Yr bond vs 6.90%
YTM (%)
Short 18m OIS.
YTM: 6.85%
6.80%
• While the fund intends to exit the Bond-OIS
6.70%
strategy in some time by executing 3Y Bond vs
short tenor OIS (Overnight Index Swap)
6.60%
• The fund is for investors who want to have a 6.50%
hedge during rising rates.
6.40%
0 0.5 1 1.5 2 2.5
Macaulay Duration (years)
Strategy boundary Regulatory boundary
0.6 – 1.5 years No boundary
Source: Internal; Data as on 31/Oct/22DSP Money Market Funds
➢ Current drivers of money market rates:
Rates are currently driven by two additional factors, apart from the RBI rate hikes
1. Core liquidity has tightened due to reduction of RBI’s FX assets and seasonal increase in currency in circulation.
2. Credit offtake has picked up (17.9% YoY). The banks have had to manage their liabilities through the open market. This has led
to a spate of CD issuances from PSU and Private banks in recent months.
Further, temporary shortages of liquidity due to tax outflows cause overnight rates to swing towards MSF rate from time to time.
2. Our positioning:
With core liquidity reducing in recent weeks, even temporary build-up in government cash balances has started impacting money
market rates, by squeezing out overnight liquidity. All in all, reducing banking liquidity, increased CD supply and further actions by
the MPC in the coming policies will likely drive money market rates higher. In this environment, a staggered investment pattern on
the money market curve should balance out risk of higher volatility with reinvestment risk.
DSP Ultra Short Fund DSP Liquidity Fund DSP Overnight Fund
• The Fund operates in a duration • The Fund operates in a average • Fund invests primarily in
range of 3-6 months. maturity range of up to 91 days. overnight instruments.
• It is meant for investors, who want • It is meant for investors, who • Currently, the overnight
to benefit over liquid category over a would like to park cash for a short instruments consist solely of repos
short-term period (2-3 months). time (7 days – 2 months). backed by sovereign securities.
• The fund intends to have a mix of • The fund invests in a mix of CPs, • Fund also invests up to 5% in
CPs, CDs, Corporate Bonds and sovereign CDs, Corporate bonds and sovereign sovereign securities up to 30 days
securities. securities with maximum maturity of maturity as permitted by SEBI for
• With persistence in liquidity 91 days. placing as margin.
tightness in Oct’22, the fund tempered • The fund could invest in a • The fund has never invested in
its duration to ~0.37 years, with staggered manner maintaining a corporate bond/debt repos or
staggered allocations across parts of the lower maturity profile, which can CPs/CDs of 1-day residual maturity,
money market curve. benefit from the current rising rate ensuring that the entire exposure is
environment. sovereign in nature.
CRR – Cash Reserve Ratio; FX – Foreign Exchange; CD – Commercial Deposits; CP – Commercial Papers; MPC: Monetary Policy Committee; Source: Internal; Data as on 30/Oct/22
MSF: Marginal Standing FacilityDSP Fixed Income Fund Universe (Passive / Roll Down)
7.60%
DSP Nifty SDL Plus G-Sec Jun 2028 30:70 Index Fund – 2028 Target Maturity Roll-down
DSP Corporate Bond Fund – 2027 Roll-down
7.50%
DSP 10Y G-Sec Fund – 10Y Constant Maturity
7.40%
7.30%
7.20%
DSP Savings Fund – Annual March Roll-down
7.10%
7.00%
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00
*as on 31st October 2022; the horizontal bars represent the duration range
Investment approach / framework/ strategy mentioned herein is currently followed & same may change in future depending on market conditions & other factors. 36DSP Corporate Bond Fund Duration: 3.57 years
YTM: 7.54%*
Performance of various strategies
5 Year Gsec 3Y Roll Down
• The fund is currently following a 2027 14.00%
corporate roll down strategy i.e., it is largely 1Y to 5Y Ladder 3Y Constant Maturity
invested in papers having a maturity mid 2026- 10.50%
mid 2027 . 12.00%
• Fresh inflows and coupon investment will 9.50%
likely be invested in 2026-27 bonds. 10.00%
• The fund invests largely invests in AAA
8.50%
corporate bonds (which will be ~2/3rds of the
5y G-Sec (%)
8.00%
YTM (%)
portfolio) and sovereign bonds.
• The fund has a duration of ~3.57 yrs. and will 6.00%
7.50%
gradually reduce close to zero as we come closer
to maturity of the bonds (2026-27).
6.50%
4.00%
• The Fund’s relative performance will be
impacted by credit spreads movement, but the
fund manager will broadly aim to keep the 2.00% 5.50%
portfolio on a held to maturity basis, thereby
improving the predictability towards the roll
down date. 0.00% 4.50%
Oct-12
Oct-09
Oct-10
Oct-11
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
The fund can do much better if the peak rates are achieved and markets
may rally soon – followed by period of range trading.
*Yields are annualized yields
Source: Internal; Data as on 31/Oct/22DSP Savings Fund Duration: 0.31 years
YTM: 7.11%*
• The fund strategy is to operates as a one Year Performance of various strategies
roll-down.
5 Year Gsec 3Y Roll Down
• The fund buys one year money market 12.00%
instruments in Feb/Mar of each year. 1Y to 5Y Ladder 1 Year roll down 10.50%
• Additional flows received during the year are 10.00%
deployed in the same maturity. 9.50%
• The fund’s average maturity progressively
reduces during the year. Thus the boundary of 8.00%
the funds duration is 1 yr. (at inception of new 8.50%
5y G-Sec (%)
rolldown), to less than 1 month(a end of the
YTM (%)
rolldown). 6.00%
7.50%
• The fund invests in a mix of CPs, CDs carrying
rating of A1+ and sovereign securities.
4.00%
6.50%
• The fund has an average maturity of 0.40
years, with an allocation of 48% to CDs, 31% to
CPs & 17% to sovereign securities 2.00% 5.50%
0.00% 4.50%
Oct-12
Oct-09
Oct-10
Oct-11
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
The Savings fund strategy typically performs well if the rates remain stagnant
or rise and gives lesser return in falling rates. It’s NAV volatility is less due to
low duration.
*Yields are annualized yields
Source: Internal; Data as on 31/Oct/22DSP Nifty SDL Plus G-Sec
Jun 2028 30:70 Index Duration: 4.22 years
Fund YTM: 7.57%*
Performance of various strategies
5 Year Gsec 3Y Roll Down
14.00%
1Y to 5Y Ladder 3Y Constant Maturity
10.50%
12.00%
• The fund is a 2028 target maturity fund. The 9.50%
fund invests in papers having a maturity up to 10.00%
June 2028.
8.50%
• The Fund invests 70% in Government
5y G-Sec (%)
8.00%
securities and 30% in State development loans.
YTM (%)
The Fund follows the prescribed Nifty SDL Plus G- 7.50%
sec June 2028 30:70 Index 6.00%
• The investment is done as per the index i.e.
in states that have better fiscal metrics i.e., 6.50%
4.00%
outstanding liabilities / total state GDP.
2.00% 5.50%
0.00% 4.50%
Oct-12
Oct-09
Oct-10
Oct-11
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
The roll down funds do much better if the peak rates are achieved and
markets may rally soon – followed by period of range trading.
*Yields annualized yields
Source: Internal; Data as on 31/Oct/22DSP 10Y G-sec Fund Duration: 6.82 years
YTM: 7.48%*
Performance of various strategies
5 Year Gsec 3Y Roll Down
14.00%
1Y to 5Y Ladder 3Y Constant Maturity
10.50%
12.00%
9.50%
• The 10Y G-sec fund invests in 10Y 10.00%
government bond
8.50%
• The fund runs a duration similar to 10 year
5y G-Sec (%)
8.00%
YTM (%)
benchmark Government Security
7.50%
• Currently the fund has a duration of 6.82 6.00%
years.
6.50%
4.00%
2.00% 5.50%
0.00% 4.50%
Oct-12
Oct-09
Oct-10
Oct-11
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
The constant maturity typically performs well when rates are nearing
their peak, or when yields stagnate. They usually have more NAV
volatility.
Source: Internal; Data as on 31/Oct/22 *Yields are annualized yieldsKey Risks associated with investing in Fixed Income Schemes
Interest Rate Risk - When interest rates rise, bond prices fall, meaning the bonds you hold lose value. Interest rate
movements are the major cause of price volatility in bond markets.
Credit risk - If you invest in corporate bonds, you take on credit risk in addition to interest rate risk. Credit risk is the
possibility that an issuer could default on its debt obligation. If this happens, the investor may not receive the full value of
their principal investment.
Market Liquidity risk - Liquidity risk is the chance that an investor might want to sell a fixed income asset, but they’re
unable to find a buyer.
Re-investment Risk: If the bonds are callable, the bond issuer reserves the right to “call” the bond before maturity and pay
off the debt. That can lead to reinvestment risk especially in a falling interest rate scenario.
Rating Migration Risk - If the credit rating agencies lower their ratings on a bond, the price of those bonds will fall.
Other Risks
Risk associated with
• floating rate securities
• derivatives
• transaction in units through stock exchange Mechanism
• investments in Securitized Assets
• Overseas Investments
• Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvIT)
• investments in repo of corporate debt securities
• Imperfect Hedging using Interest Rate Futures
• investments in Perpetual Debt Instrument (PDI)
41Product Labelling
42Product Labelling
43Product Labelling
*Investors should consult their financial advisers if in doubt about whether the Scheme is suitable for them. 44Potential Risk Class Matrix For Debt Scheme(s) Of The Fund
45Potential Risk Class Matrix For Debt Scheme(s) Of The Fund
46Disclaimer & Product Labelling
In this material DSP Investment Managers Private Limited (the AMC) has used information that is publicly available, including information developed in-house.
Information gathered and used in this material is believed to be from reliable sources. The AMC however does not warrant the accuracy, reasonableness and / or
completeness of any information. The data/statistics are given to explain general market trends in the securities market, it should not be construed as any research
report/research recommendation. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”,
“expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward looking statements”. Actual results may differ materially from
those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market
risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and
interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. The
stock(s)/issuer(s) mentioned in this presentation do not constitute any research report/recommendation of the same and schemes of the Fund may or may
not have any future position in these stock(s)/issuer(s). The portfolio of the schemes is subject to changes within the provisions of the Scheme Information
document of the schemes. There is no assurance of any returns/potential/capital protection/capital guarantee to the investors in schemes of the DSP Mutual
Fund. Past performance may or may not sustain in future and should not be used as a basis for comparison with other investments. This document indicates
the investment strategy/approach/framework currently followed by the schemes and the same may change in future depending on market conditions and
other factors. All figures and other data given in this document are as on October 31, 2022 and the same may or may not be relevant in future and the same should not
be considered as solicitation/ recommendation/guarantee of future investments by the AMC or its affiliates. Investors are advised to consult their own legal, tax and
financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of schemes of DSP Mutual Fund. For
complete details on investment objective, investment strategy, asset allocation, scheme specific risk factors please refer the scheme information document and key
information memorandum of the schemes, which are available at AMC and registrar offices and investor service centres/AMC website- www.dspim.com For Index
Disclaimer click Here
“Mutual Fund investments are subject to market risks, read all scheme related documents carefully”.
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