Review:

Bonds markets traded in a shallow range in absence of any fresh data or triggers. Expectations of OMO kept the markets stable despite supply side pressures. The Index of Industrial Production (IIP) for the month of February was seen at 2% as compared to -1.5% in January 2016. Consumer Price Index (CPI) was seen at 4.83% in March as compared to 5.26% in February. Indian Rupee closed against the dollar at 66.33 as on 30 April 2016.

Outlook :

We have a neutral outlook on bond markets over short term and a positive outlook over medium term. Continued support of RBI through OMO purchase for maintaining long term liquidity should keep the negative sentiments at check. We believe that the transmission of rate cut through MCLR will be a slow and gradual process. The extent of further monetary easing will depend on monsoons and inflation impulse on account of commodity prices. We believe a good monsoon may lead to further monetary easing in second half of the current calendar. Instead, the focus will now likely be on greater transmission by ensuring adequate liquidity in the banking system.

Review:

Nifty gained ~1.4% in the month of April (Q4 FY16 Nifty lost 2.6% and FY16 Nifty lost 9%). FIIs remained net buyers of domestic equities worth US$ 0.59 bn after a turnaround that happened in March after being net sellers from November 2015 to February 2016. For the month, DIIs turned net sellers of equities in tune of US$ 0.35 bn. (Q4 FY16: FIIs and DIIs were buyers of equities worth US$ 1.2 bn and US$ 1.1 bn respectively). Nifty gained amidst global liquidity driven rally, risk-on sentiments and accommodative stance by RBI. The following sectors outperformed the index: Real Estate, Telecom and Metals & Minerals as against sectors such as Finance, Media, Pharma & Healthcare and Oil & Gas which underperformed in the index in Q4 FY16.

Outlook:

Short term-Neutral; Long term-Positive

We expect the equity markets to be range bound as concerns persist regarding the pace of domestic economic revival. A good monsoon is central to the recovery in economic activity. Further, concerns regarding the US Federal Reserve raising rates and slowdown in China is also likely to limit upside to the markets. Nifty valuations remain stretched at 17x 12-month rolling forward FY17E as compared to the long term average of 14.5x. However, we expect over the long term equity markets to deliver double digit growth on account of improved corporate earnings in a better domestic macro-economic environment. Key reasons driving our optimism in the long term are based on lower global commodity prices, higher GDP growth, benign inflation & reduced cost of capital.

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.