Outlook for May 2015


Review :

Bond markets remained volatile owing to both domestic and global developments during the month. The benchmark 10 year government security climbed ~15 basis points and closed at 7.86% as on 30 April 2015. The Index of Industrial Production (IIP) for the month of March was seen at 2.1% as compared to 4.9% in February 2015. Consumer Price Index (CPI) eased to a four month low of 4.9% in April as compared to 5.3% in March. Indian Rupee depreciated against the dollar to close at 63.43 as on 30 April 2015.


We have a neutral to cautious outlook on fixed income portfolio over short term. Given the supply pressure in the market, we do not see any downward movement in bond yields over next couple of months. On the inflation front, even though core inflation has softened, we expect food inflation to remain under pressure owing to unseasonal rains in the recent past. Moreover, markets will keenly watch out for cues on rate hike by Federal Reserve. RBI action in June policy will be a key factor for the market for further cues.



Nifty lost 3.7% in the month of April (CYTD15 Nifty lost 1.2%). Both FIIs and DIIs were net buyers of Indian equities worth US$ 1.9 bn and US$ 1.8 bn respectively. Nifty declined as market sentiments remained subdued due to weak corporate earnings, volatility in global markets, rising crude prices (Brent gained ~21% in April) and concerns surrounding MAT. The following sectors outperformed the index: Pharma/Health care, Telecom and Metals & Minerals as against sectors such as Media, Real Estate and cement which were laggards for the three month period ending April.


Short term-Neutral; Long term-Positive
In the short term, we expect the equity markets to be range bound on the back of primary issuance and concerns regarding the pace of revival in the domestic economy. Nifty valuations at 16x FY16 earnings; long term average of 14.5x, vs MSCI Emerging Markets Index’s multiple of 12.4x. However, we believe that with the improving prospects of domestic economy along with benign global commodity prices and likely fall in interest rates along with lower corporate taxes would lead to corporate earnings compounding at double digit, followed by similar returns from equities over the long term.


The Company recognises that risk is an integral element of investment management and managed acceptance of risk is essential for the generation of value. The Company’s acceptance of risk is dependent on the return on risk-adjusted capital and consistency with its strategic objectives. The Company will endeavor to reduce risks to the extent it is optimal to do so. In general therefore, the Company’s control procedures and systems are designed to manage risk, rather than eliminate it.

To manage the risk effectively, the Company has a three tiered investment structure with varying levels of decision making, which comprises the Board Investment Committee, Executive Investment Committee and the Investment team.

The Board Investment Committee recommends and reviews investment policy and changes thereto, reviews investments and oversees the risk management framework for the investments. The Executive Investment Committee is responsible for building investment strategy, monitoring investment decisions and returns, providing support on regulatory and tax issues and it also approves delegation of authority to the Dealers. The Investment team is responsible for market tracking, investment decisions, investment compliance, monitoring and reporting of risk.

The Company has strong governance framework encompassing segregation of duties and adequate firewalling between Investment and other roles. The Company has code of conduct to prevent insider trading. System used for investment management is seamlessly integrated within and with its peripheral systems with adequate system as well as manual controls. The activities and systems of the Investment team are subject to concurrent audit.

The Company uses advanced risk identification, measurement and management tools to ensure that risk exposure is within the Board approved risk policy.