The Concept and Role of Mutual Funds

1
TIME TO LOOK AT DEBT FUNDS ?
2
SHORT TERM NEGATIVES

• Oil prices can be revised upwards in Mid Oct
  after
• the Maharashtra assembly election pushing up
  the
• inflation.

• Tight liquidity will become further tight with
  NTPC
• issue concentrating liquidity with few banks
  and
• festival season demand keeping the pressure.
• The RBI may hike Repo rate in the credit policy
• on Oct 26 th.
• Credit demand growth is forcing banks to run a
• very high incremental CD ratio with little
  amount
• available for investments.

3
OIL PRICE HIKE
Expect a Oil Price in Mid Oct after Maharashtra
election
Last domestic Price hike
WTI OIL PRICES
4
LIQUIDITY IS TIGHT
Liquidity is expected to be tighter in near term
for NTPC issue and festival season demand.
REPO AMOUNT WITH THE RBI
5
LIQUIDITY WILL TIGHTEN
Festival season demand removes liquidity from the
banking system
Repo declined during Festival Season in CY 03
6
LIQUIDITY WILL TIGHTEN
TCS issue concentrated liquidity in the hands of
few banks and pushed short term yields. ( NTPC
issue can do the same )
Repo and 364 day T bill rates
TCS issue time
7
THE RBI MAY HIKE REPO RATE
A Quarter percent hike ?
8
REPO RATE VS 10 YEAR GILT
Changes in Repo rates affects gilt prices / yields
Repo rate vs 7.37 GOI 2014 price
10 year yield moved by 35 bps When Repo rate was
cut by 50 bps In Aug 03
9
CREDIT-DEPOSIT RATIO
Steepness in CD ratio suggests demand for credit
10
BAD NEWS IS IN THE PRICE

• Benchmark yield at 6.92 yield is near its high
  level.
• The 1-10 year gilt spreads probably discount a
  Repo rate hike.
• Liquidity will return back in 1H FY 06 on MSB
  maturity.
• Inflation will come down in 1 H FY 06 on higher
  base effect.
• US Yields are heading lower on weak data

11
YIELDS ARE AT HIGH LEVEL
Benchmark Gilt ( 7.38 GOI 2015 ) is trading at
6.92
12
WPI NOS ARE FALLING
( from a very high level )
13
BAD NEWS IS IN THE PRICE
1-10 year Gilt spreads probably discounts a Repo
rate hike
REPO RATE 1-10 YEAR GILT SPREAD
14
LIQUIDITY WILL BE BACK IN 1 H FY 06
15
INFLATION WILL FALL IN 1 H FY 06
Inflation can come down on higher base effect and
moderate rise in the WPI Index
Assuming 20 pips increase in WPI Index every week
16
US 10 YEAR GILT YIELD
US yields have remained soft on weak economic
data
17
SUMMARY

• Expect high volatility in near term due to short
  term negatives.
• Longer term outlook on interest rates in turning
  to be positive.
• The risk-reward ratio has turned in favor of
  investor with one year horizon.
• No short term gain (may be little pain ).
• Gradual entry recommended in Debt Funds at 7
  yield level on 7.38 GOI 2015.

18
RISK FACTORS
Statutory Details Prudential ICICI Mutual Fund
(The Fund) has been set up as a Trust sponsored
by Prudential plc (through its wholly owned
subsidiary Prudential Corporation Holdings
Limited) and ICICI Bank Limited. Prudential ICICI
Trust Limited is the Trustee to the Fund and
Prudential ICICI Asset Management Company Limited
is the Investment Manager to the Fund. Risk
Factors Mutual Funds and securities investments
are subject to market risks and there is no
assurance or guarantee that the objectives of the
Scheme will be achieved As with any securities
investment, the NAV of the Units issued under the
Scheme can go up or down, depending on the
factors and forces affecting the capital markets
Past performance of the Sponsors, AMC/Fund does
not indicate the future performance of the Scheme
of the Fund The Sponsors are not responsible or
liable for any loss resulting from the operation
of the Schemes beyond the contribution
collectively made by them towards setting up the
Fund and such other accretions and additions to
the corpus set up by the Sponsors.. Please refer
to the Offer Document/Addendum for
scheme-specific risk factors before investing.