Axis Short Term Plan : NFO
As mentioned in my earlier notes, too much negative news is already priced into the debt markets. The same is reflecting in 10 year benchmark hovering around 7.63% levels & also in the 3-5 year corporate bond rates.
Markets have started discounting rate hikes coupled with CRR hike. However, most of the bankers & Mr. C. Rangarajan (Economic Advisor to PM) are of the view that to curtail inflation, RBI needs to suck out excess liquidity through CRR hike rather than tampering with benchmark rates in the near future. They also predict that even if there is monetary tightening in the near future, it might not result in rate hikes by the banks (due to excess liquidity & lower credit offtake).
Any effort by RBI to curtail liquidity in the system is constantly getting offset by huge FOREX flows on account FII inflows. Almost $17 bln had been pumped during 2009; causing the local currency to rise by almost 10% from its low it touched in March 2009 of Rs.52/$.
Also, Q2 growth of GDP numbers was mainly fuelled by the Fiscal Stimulus provided by the Government. If one removes the impact of this stimulus on GDP numbers, actual growth would come down by almost 150-200 bps on the lower side. This fact will also not be lost on RBI as & when they think of raising interest rates to curb inflationary pressures.
As the data shows, inflationary pressures are more to do with failed monsoon & its impact on agricultural produce rather than the manufacturing sector. Hence, since the inflation is more attributed to supply side issues; this once again gives credence to no rate hikes in the January policy.
Primary, Manufacturing & Fuel – Inflation
AXIS SHORT TERM PLAN NFO LAUNCH- A RIGHT PRODUCT AT THE RIGHT TIME:
Keeping in mind the above background of current & future scenario of debt markets & various expectations by different market participants it is once again a good time to take some interest rate calls & duration calls in your portfolio; especially in the 3-5 year corporate bond segment.
AXIS Mutual Fund is likely to launch in the month of January 2010 NFO of AXIS Short Term Plan. With the current status of debt markets & high liquidity with low credit offtake, the said NFO can be compared (in terms of timing) to launching an equity Fund at a SENSEX of say 10000. As one can’t go wrong by investing in such an NFO, I would assume that one can’t go wrong by investing in an NFO of Short Term Plan of AXIS Mutual Fund (with at least 6 month investment horizon) as most of the negative factors are already priced in with additional following reasons adding credence to the investment story:
Spreads between 1 year & 5 year corporate bonds are at an all time high. Before the hiking cycle started post October 2004, market had already priced in these hikes (which RBI delivered over a period of time). The spreads actually came down.
1-5 year Corporate Bond segment also is very steep & is likely to benefit due to :
- Higher accrual
- Compression post March 2010
- Lower credit offtake & lean credit season post March 2010
- Roll down effect
- High liquidity in the system which will continue even post CRR hikes (if any)
- Positive impact on debt market due to better than expected Fiscal discipline in 2010-2011. This is expected for following reasons:
- Better GDP numbers helping better revenue collections
- Roll back of Fiscal Stimulus adding to better revenue collections
- Lower Fertiliser & oil subsidy
- Disinvestment of PSU share adding to Govt coffers
- 3 G auction adding to collection figures
As can be seen from above, timing of the NFO of AXIS Short Term Plan could not have been better. Even if there are rate hikes in the Credit Policy Review slated on January 29’2010; the Fund Manager will be in a position to capture the same while building the portfolio. The said NFO is likely to collect funds before the Credit policy Review & hence will help him start on a clean slate without any baggage of the past.
As is likely, the said scheme is likely to have an average maturity of 2-2.5 years & is likely to capture high gross yields (based on current market rates) of more than 6.5%. This will help the investors capture both high accruals & capital gains with at least 6 month investment horizon.
Investors in the NFO of AXIS Short Term Plan will have the added advantage of no exit load (if invested during NFO period). This is not say that the investor should exit before March 2010. I would personally advise clients to invest with at least six month investment horizon; however, if one sees decent returns in their portfolio post March 2010, one will be free to exit before six month period (if investment done during NFO) .
I would strongly advise you to look to invest in the said NFO with a view to earn decent returns over six month investment horizon.
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