Religare Bank Debt Fund - NFO Closes: 24th December, 2012
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Religare Bank Debt Fund
(An Open Ended Debt Scheme)
NFO Closes: 24th December, 2012
The Macro Environment
GDP Growth Seen Slowing
Percentage Point Contribution to Real GDP Growth
12 Real GDP Growth Rate (YoY %)
9.6
10 9.3
8.4 8.4
8
6.7 6.5
6
4
2
0
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
GDP growth decelerated to just 6.5% in FY12, largely led by fall in investment demand, in
turn affecting consumer sentiment & demand.
3
Source : Central Statistical Organisation; CMIE, Citi, CEIC, CLSA. GFCF: Gross Fixed Capital Formation
IIP Growth Continues To Be Dismal
12
IIP
10
8
7.5 IIP numbers confirm
6
slowdown in the Indian
YoY in %
4
2
0
- 0.4
economy.
-2
-4
-6
May-11
May-12
Aug-11
Aug-12
Nov-11
Sep-11
Sep-12
Dec-11
Jun-11
Feb-11
Jun-12
Feb-12
Mar-11
Mar-12
Oct-11
Jan-11
Jan-12
Apr-11
Apr-12
Jul-11
Jul-12
14
12
10 8.1
Manufacturing Growth in the manufacturing
8
6 sector has also dipped into
YoY in %
4
2
0 negative territory.
-2 -1.5
-4
-6
-8
May-11
May-12
Aug-11
Aug-12
Nov-11
Sep-11
Sep-12
Dec-11
Jun-11
Jun-12
Feb-11
Feb-12
Mar-11
Mar-12
Oct-11
Jan-11
Jan-12
Apr-11
Apr-12
Jul-11
50 Jul-12 Capital goods production
40 Capital Goods
30
20
index also showing sustained
YoY in %
10 5.3
0 negative growth.
-10
-20 -12.5
-30
May-11
May-12
Aug-11
Aug-12
Nov-11
Sep-11
Sep-12
Dec-11
Jun-11
Jun-12
Feb-11
Feb-12
Mar-11
Mar-12
Oct-11
Jan-11
Jan-12
Apr-11
Apr-12
Jul-11
Jul-12
-40
4
Source : Office of Economic Advisor ( to the Government of India). IIP: Index of Industrial Production
RBI Maintains Hawkish Stance
CRR Repo Reverse Repo WPI Headline (YoY%) WPI Non Food Manufactured Products (YoY%)
10%
12
9%
10
8%
8% 7.45
8
7%
7%
6
%
5.95
6% 4
5% 4.25%
2
4% 0
3% -2
Sep-07
Sep-08
Aug-04
Aug-05
Aug-06
Jul-01
Oct-09
Jul-02
Oct-10
Jul-03
Oct-11
Nov-12
Aug-05
Jun-06
Aug-07
Jun-08
Aug-09
May-10
May-12
Nov-06
Oct-08
Oct-10
Oct-12
Dec-11
Jan-06
Jan-08
Jan-10
Jul-11
Mar-07
Mar-09
Mar-11
The Reserve Bank of India (RBI), in its quarterly review of monetary policy on October 30th,
2012 kept the repo and reverse repo rates unchanged at 8% and 7%, respectively and
reduced the CRR by 25 bps to 4.25%.
While RBI acknowledged the growth in the economy is below its potential, it remained more
concerned about inflation.
RBI has also indicated that based on their current assessment of growth and inflation
trajectories, there might be rate reductions from Q1 CY13.
5
Source : Bloomberg , RBICorporate India’s Interest Paying Ability
Median Interest Coverage Ratio
6%
Source: CRISIL Research, CMIE
High Inflationary environment has driven up interest rates hurting corporate earnings as
borrowing costs have increased.
Interest paying ability of companies in the S&P CNX 500 Index (ex BFSI and public sector
oil marketing companies), totaling to 420 companies dipped to a five-year low last year
and has deteriorated further from then.
6
Source : CRISIL ; Interest coverage ratio of companies in the S&P CNX 500 Index
(ex BFSI and public sector oil marketing companies, totaling to 420 companies)Corporate India’s Net Profit Margins
90,000 Net Profit NPM 12
80,000
9.68
. 10
70,000
60,000 8
Net Profit ( ` Crs.)
NPM (%)
50,000 4.06
6
40,000
30,000
. 4
20,000
71,448.3
52,835.5
40,558.6
56,397.8
80,286.8
33,293.9
2 10%
10,000
0 0
Jan-11
May-11
Sep-11
Mar-11
Jul-11
Nov-11
Nov-10
Jan-12
May-12
Mar-12
Jul-12
Sep-12
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
High interest costs are hurting Indian manufacturing units’ profit margins & elongating
working capital and thus affecting capacity expansion & growth.
Consensus forward earning growth for FY13 is at 10% - dropped from 15% over last 1 year.
7
Source : FactSet, IBES Estimates, Morgan Stanley Research. NPM: Net Profit MarginCorporate Default Rate At 10 Year High
Credit quality pressures have intensified for First Half (H1)
Apr’11– -Sep
Sep’11
11 Oct’12 - Mar’12
2012 - 13
Indian companies. Downgrades
Downgrades 207 292 484
Upgrades 313 266 320
Most downgrades were driven by liquidity
pressure and weakening demand.
Annual Default Rate
4.50%
4.20%
Notably, one third of the downgrades were to 4.00%
3.50%
the default category (‘CRISIL D’). 3.00%
2.50%
2.00%
Instances of default increased to 183
1.50%
(in H1 of 2012-13). 1.00%
0.50%
0.00%
The overall annualised default rate reached FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 H12013
4.2% in H1 (first half) of 2012-13, surpassing
the ten year high of 3.4% in 2011-12.
8
Source: CRISILLooking Ahead
The macro situation continues to remain challenging with high levels of fiscal deficit and
inflation, declining exports, falling IIP numbers, high current account deficit adding to the
concerns.
GDP growth for FY13 is pegged at 5.5% (CRISIL estimates), factors in the adverse impact of
rainfall deficiency and concern over Euro Zone growth outlook.
The European Central Bank (ECB) and the US Fed have initiated a fresh round of liquidity
measures, which will exert pressure on global asset prices, and particularly commodity
prices.
The credit condition amongst domestic borrowers is expected to be strained over the near
to medium term.
9
Source: RMFPresenting Religare Bank Debt Fund (An Open Ended Debt Scheme)
Banking Industry In India
India’s banking industry has evolved over decades and
is considered to be very stable with healthy balance
sheets and adequate capitalisation vis-à-vis RBI standards.
The industry has remained unscathed from the global financial
crisis which took a toll on the financial system in other parts of the world due to the low
exposure to risky assets like US home mortgages and complex derivatives.
Large potential for increase in banking penetration as the country has a lower penetration
level as compared to other developed nations.
Steady Performance & Improved Outlook* – Indian banks have delivered consistent
performance on ROA & ROE parameters.
Net Interest Margins (NII / Avg. Assets) at 2.82% in FY121 - one of the best when compared
to the banking industry in other countries.
The above outlook on the Banking Industry is given for the purpose of understanding of current environment about Banking
Industry and should not be construed as a promise on minimum returns and safeguard of capital. The AMC / Mutual Fund is not
guaranteeing or promising or forecasting any returns.
* Past performance may or may not be sustained in future.
11
1
Religare AMC ResearchReligare Bank Debt Fund
The fund will invest at least 80% in Bank assets.
Endeavour to maintain high credit quality and liquid portfolio.
A minimum of 70% of the assets will be invested in securities rated AAA (long term) / A1+
and equivalent.
Portfolio Characteristics:
Actively managed portfolio.
Take advantage of mispriced spreads along the short term yield curve.
Manage duration based on attractiveness of term spreads.
Current portfolio duration is likely to be maintained between 18 - 36 months.
Intended duration stated in this document is based on current view and is subject to change from time to time.
12Investment Universe: Fairly Liquid
Total Traded (YTD): ` 19,093 bn Commercial Paper O/S Bank Certificate of Deposit O/s
Commercial 500000
Papers 400000
` (in crs.)
20% 300000
200000
Certificate of
Deposits 100000
80% 0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Data as on 7th November, 2012
Market Capitalisation
Bank CDs and PSU bonds have high State Loans
Local Bodies
0% Supranational Bonds
18% Treasury Bills 0%
level of liquidity in terms of traded 7%
Bank
volumes and high outstanding Bonds
PSU
4%
Bonds
issuance. Corporate
Bonds 6%
18% Fin Inst.
3%
Others
Bank CDs provide comfort of safety Govt. Securities 5%
57%
of capital due to low credit risk. Data as on 31st October, 2012
The above information is provided for illustration purpose only and should not be construed as a promise on minimum returns
and safeguard of capital. The AMC / Mutual Fund is not guaranteeing or promising or forecasting any returns.
13
Source : RBI, NSE, FIMMDAComfortable Capitalisation
CAR Net NPL (%)
---------------------------- ---------------
20.00% PSU Banks Private Banks 3.50%
18.00%
3.00%
16.00%
14.00% 2.50%
12.00% 2.00%
10.00%
8.00% 1.50%
6.00% 1.00%
4.00%
0.50%
2.00%
0.00% 0.00%
UCO Bank
Punjab National Bank
Bank of Baroda
Bank of India
Indian Bank
Indian Overseas Bank
Yes Bank
ING Vysya Bank
Indusind Bank
Canara Bank
Corporation Bank
Dena Bank
IDBI Bank
Oriental Bank of Commerce
SBI
Union Bank
United Bank
ICICI Bank
HDFC Bank
Axis Bank
DCB
Jammu Kashmir Bank
Kotak Mahindra Bank
Allahabad Bank
Andhra Bank
Data as on 30th September, 2012
Capital Adequacy Ratio (CAR) is higher than the RBI prescribed norm of 9%.
While the CAR of PSU banks is lower and percentage of Non Performing Loans
(NPLs) is higher, compared to private sector banks, the majority government
ownership in PSU banks provides comfort of safety.
14
Source : Capitaline, RBITrend In Non Performing Assets
Real GDP YoY NPA
18
16
14
12
(%)
10
8
6 5.5%
4 3.5% 2013E
2
0
31-Mar-97
31-Mar-98
31-Mar-99
31-Mar-00
31-Mar-01
31-Mar-02
31-Mar-03
31-Mar-04
31-Mar-05
31-Mar-06
31-Mar-07
31-Mar-08
31-Mar-09
31-Mar-10
31-Mar-11
31-Mar-12
31-Mar-13
As part of the Government’s reform drive, weak sectors like power are being
financially restructured, which would help ease the NPAs in the banking industry.
The government has also indicated that stressed sectors could receive some
“hand holding” to recover from these difficult times.
15
Source: RBI, BloombergBank Assets As An Investment Opportunity
700 1 Year CD v/s 1 Year T-Bill Spread
600
500
400
300
200
100
0
May-12
Sep-07
Sep-08
Dec-07
Dec-08
Feb-12
Mar-08
Oct-09
Oct-10
Oct-11
Aug-12
Nov-12
Jan-10
Jan-11
Apr-09
Apr-10
Apr-11
Jun-08
Jul-09
Jul-10
Jul-11
Bank assets offer attractive spreads on a risk reward basis:
The average (5 year) credit spread of 1 year Bank CDs over 1 year T-Bills (excluding
the crisis period of 2008) has been a healthy 152 bps, without compromising
significantly on safety. The highest and lowest spread during this period has been
267 bps and 31 bps respectively.
The above information is provided for illustration purpose only and should not be construed as a promise on minimum returns
and safeguard of capital. The AMC / Mutual Fund is not guaranteeing or promising or forecasting any returns.
16
Source: RBI, BloombergTerm Spreads
12 Month CD v/s 3 Month CD 3 Year PFI v/s 12 Month CD Spread
200 100
High: 58.45
High: 140
150 50
100
0
Sep-10
Sep-12
Dec-10
Dec-11
Feb-11
Feb-12
Aug-11
Nov-12
Oct-11
Apr-11
Apr-12
Jun-11
Jun-12
50
-50
0
Sep-10
Sep-12
Dec-10
Feb-11
Dec-11
Feb-12
Oct-11
Aug-11
Nov-12
Apr-11
Apr-12
Jun-11
Jun-12
-100
-50
-150 Low: -130.50
Low: -80
-100
Data as on 15th November, 2012 Data as on 12th November, 2012
Average term spreads within Bank CDs and between Bank CDs and Public Financial
Institutions’ (PFI) debt varies across time periods due to seasonal liquidity tightness,
quarter end phenomena, demand supply dynamics, etc.
The fund aims to take benefit from mispriced spreads actively. Noteworthy, the period
from September 2010 till June 2012 did not warrant taking exposure to the PFI segment, as
the spread was negative over CDs.
17
Source: RBI, BloombergWho Should Invest?
Investors who are seeking exposure to debt and money oney
redit
market instruments issued by banks with relatively low credit
risk while aiming for reasonable returns.
Investors with an investment horizon of more than 1 year.
r.
18Key Facts
Category An Open - Ended Debt Scheme
Investment
Investment Objective
Objective To
To generate
generate optimal
optimal returns
returns by
by investing
investing in
in aa portfolio
portfolio of
of debt
debt & money market market
& money securities issued issued
securities primarily by banks.
primarily However,
by banks.
there can be
However, nocan
there assurance that the investment
be no assurance objective objective
that the investment of the scheme will be realized
of the scheme and therealized
will be Scheme does
and the not assure
Scheme or
does
guarantee
not assureany returns. any returns.
or guarantee
Asset Allocation Type of Instruments Indicative
Indicative Allocations (%Allocations
of corpus) (% of total assets) Risk
Risk Profile
Profile
Type of Instruments
Minimum Maximum High/Medium/Low
Debt & Money Market Instruments issued by Banks 80 100 Low to Medium
Securities issued by Public Financial Institutions, T-Bills,
CBLO, G-sec, Units of Debt & Liquid Mutual Fund Schemes* 0 20 Low
* Investment in mutual fund units will be restricted to 10% of the net assets of the Scheme. The scheme will not invest in
securitized debt. The scheme will not participate in repo in corporate debt securities.
The total exposure of the Scheme in a particular sector (excluding investments in Bank CDs, CBLO, G-Secs, T-Bills and AAA
rated (or equivalent) securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net
assets of the scheme.
Fund Manager Nitish Sikand
Benchmark CRISIL Short-Term Bond Fund Index
Fund Manager
Minimum Application Lumpsum:- ` 5,000/- per application and in multiples of ` 1/- thereafter.
Amount
Frequency NFO Period & Ongoing basis
Benchmark
Systematic Investment Plan Monthly ` 1,000/- per month and in multiples of ` 1/- thereafter.
Quarterly ` 2,000/- per quarter and in multiples of ` 1/- thereafter.
Minimum SIP Installment Monthly 6 (including first installment)
Quarterly 4 (including first installment)
Options Growth Option Dividend – Daily / Monthly
Payout facility offered in Monthly Dividend Option; Reinvestment facility offered in Daily & Monthly Dividend Option.
19
... Please Turn OverKey Facts Cont’d...
Category
Loads An
ForOpen
New -Fund
Ended Debtand
Offer Scheme
Ongoing basis:-
Entry Load : Nil
Investment Objective To generate optimal returns by investing in a portfolio of debt & money market securities issued primarily by banks.
The upfront commission, if any, on investment made by the investor shall be paid by the investor directly to the Distributor,
However, there can be no assurance that the investment objective of the scheme will be realized and the Scheme does
based on his assessment of various factors including the service rendered by the Distributor.
not assure or guarantee any returns.
Exit Load^ : 1% (If redeemed / switched out on or before 1 year from the date of allotment)
Asset Allocation : Nil (If redeemed / switched out after 1 year from the date of allotment).
^ Exit load charged, if any, will be credited back to the scheme, net of service tax.
Transaction Charges In terms of SEBI circular no. IMD/DF/13/2011 dated August 22, 2011, a transaction charge as follows is payable to
distributors who have opted to receive transaction charge*:
i) For existing investors in a Mutual Fund: ` 100/- per subscription of ` 10,000/- and above;
ii) For first time investors in Mutual Funds: ` 150/- per subscription of ` 10,000/- and above.
*Distributors shall also have the option to either opt in or opt out of levying transaction charge based on type of the
product.
In case of investment through Systematic Investment Plan (SIPs), the transaction charge shall be applicable only if the
total commitment through SIP (i.e. amount of each SIP installment X total number of SIP installments) amounts to
` 10,000/- and above. In such cases, the transaction charge shall be recovered in 3-4 installments, as may be decided
by Religare AMC.
Fund Manager However, there will be no transaction charge on:
i) Subscription of less than ` 10,000/-; or
ii) Transaction other than purchase / subscriptions relating to new inflows; or
Benchmark iii) Direct subscription (subscription not routed through distributor); or
iv) Subscription routed through distributors who has chosen to ‘Opt-out’ of charging of transaction charge; or
v) Transaction routed through Stock Exchange(s)
The transaction charge, if any, will be deducted by the AMC from subscription amount and shall be paid to distributor.
The balance subscription amount, after deducting applicable transaction charges, will be invested.
It is clarified that upfront commission to distributors will continue to be paid by the investor directly to distributors by
a separate cheque.
20Disclaimer
Disclaimer: This presentation is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund units/securities. This document
alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to
any party. All figures, charts/graphs and data included in this document are as on date and are subject to change without notice. The statements contained herein
may include statements of future outlook and other forward looking statements that are based on our current views and involve known / unknown risks and
uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The data used in this
document is obtained by Religare AMC from the sources which it considers reliable. While utmost care has been exercised while preparing this document, Religare
AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The
content of this document is intended solely for the use of the addressee. If you are not the addressee or the person responsible for delivering it to the addressee, any
disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it is prohibited and may be unlawful. The recipient(s) before acting on any
information herein should make his/their own investigation and seek appropriate professional advice.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
MKTG/Bank Debt Fund-NFO/Nov 2012/C679
21Get In Touch
Corporate Office:
Religare Asset Management Company Private Limited
3rd Floor, GYS Infinity, Paranjpe ‘B’ Scheme, Subhash Road,
Vile Parle (East), Mumbai - 400 057, India
T +91 22 67310000 F +91 22 28371565
Follow us on
Call : 1800-209-0007
Sms : ‘Invest’ to 56677 > Invest Online www.religaremf.comYou can also read
