Empower for the Month of February 2013 - Birla Sun Life Mutual Fund

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Investment Outlook Equity Investment Outlook The benchmark indices, Sensex and Nifty rose 2.4% and 2.20% respectively over the last month. This was aided by gains in sectors such as IT, Oil & Gas, Realty and Banking. On the other hand, Metals, Auto, Pharma, Capital Goods and Infrastructure bore the brunt of investor selling. Broader market indices were little subdued with BSE500 gaining by 1.1% only. This was mainly on account of poor show by mid caps which fell by 1.7% (CNX Mid cap Index). FIIs started the year with stepped up pace of buying in Jan with net purchases to the tune of $4.1bn. Note that we had finished CY12 with $25bn of FII inflows into equities. Domestic Institutional Investors (DIIs) once again remained firmly positioned on the other side of the trade, notching up another $3.2bn in net selling. Among the DIIs, Insurance companies were by far the bigger sellers ($2.3bn) with the Mutual Funds adding another $870mn. Key point to note is the continuation of reforms with announcements on fuel subsidy reduction by tackling contentious issue of diesel price deregulation – allowing Oil Marketing Companies (OMCs) to raise diesel prices in small steps every month. Controversial tax proposals under GAAR were also deferred by 2 years and will be implemented on prospective basis, increasing railway passenger fares etc. The FM has been on a roadshow meeting foreign investors across geographies and sending a categorical message that fiscal prudence would be maintained. To this end, we expect the divestment activity to continue following stake sale in Oil India. We expect policy action would continue in form of project clearances coming through (Cabinet Committee on Investments to play key role in this), establishment of coal price pooling mechanism to enable supply of imported imports to stranded power plants, implementation of State Electricity Board (SEB) reforms etc. As the earnings reporting season is progressing, we are witnessing more positive surprises than negative ones, leading to net positive revision in earnings. This is in line with our view that earnings growth is likely to see an upward trajectory going forward. Further, RBI’s decision to reduce Repo rate and CRR by 25 bps each should also help lower interest rates for borrowers and eventually provide some relief on corporates’ bottom lines. Another important point is that equity deals have started picking up as we saw deals totaling $1.1bn during the month. This includes fresh equity raising as well as stake sales. As per media reports there is a strong deals pipeline for the next 2 months. We think this would help repair some of the broken balance sheets and provide capital for growth to the corporate sector. We maintain our positive stance in equity markets for the year and beyond. The returns would be governed by earnings growth revival. The trajectory is unlikely to be linear as market sentiments may oscillate with policy actions or events. As we have seen any such volatility presents opportunity to pick up stocks at attractive levels, investors should allocate incremental capital to equities in such situations. This is part of market psyche where the effect of such transient issues diminishes over medium term and the market eventually resumes its trajectory towards underlying earnings growth. Debt Investment Outlook Domestic Growth Outlook As we complete the first month of 2013, our base case remains that GDP growth in 2013 will pick-up to 6.5% from the 5-5.5% GDP growth we expect in 2012. The biggest comfort we draw in this conclusion is that India’s industrial growth as reflected by IIP seems to have bottomed out. After averaging close to 0% in the Mar’12-Sep’12 (on a 3mma basis), 3mma IIP has picked up to 2.4% in Nov’12. Moreover, we expect the reforms initiative started by the current finance minister in Sep’12 to further boost the industrial cycle. According to us, the most important reform in the last few months from a growth perspective is the formation of a Cabinet Committee on Investments (CCI) which can help resolve the almost 8 trillion rupees worth of large projects (based on CMIE data) that have been stalled due to environmental and regulatory clearances. On a fundamental level, there are 2 key reasons why we expect growth to pick-up in CY 2013. Firstly, the reforms momentum initiated by the government which can help restart the investment cycle of the country and resolve the backlog of stalled projects. Secondly, we believe RBI will be cutting rates by 50-75bps in CY 2013. And this will have a positive effect on GDP growth by boosting consumption. RBI has already started this cycle by a 25bps rate cut in January 2013. Unfortunately, if the CAD (current account deficit) and fiscal deficit of the country were not in such a bad state, the central bank could have taken much more stronger steps in re-invigorating growth. That said, we remain cognizant of incoming data and are always on the look-out for data that might challenge our above view. For example, some of the recent data points such as January PMI data and December credit growth are concerning from a growth perspective. Moreover, RBI in its latest monetary policy talked about continued slowdown in the services sector – a key reason RBI has downgraded FY13 GDP growth to 5.5% from its earlier estimate of 5.8%. Finally, we are closely watching the fiscal consolidation efforts by the government which also have a short term negative effect on growth. Overall, we retain our view that growth can recover to 6.5% in 2013 but are closely watching the economic trends that might change our forecast. Domestic Inflation Outlook One of the key economic puzzles for us in 2012 was the stubbornness in India’s inflation. Despite a dramatic slowdown in growth from the 9.3% in FY11 to 5.3-5.4% in first 6 months of FY13, our wholesale price index (WPI) remained pretty range bound in 7.5-8% range for the first 9 months of the year. But finally, there are some positive signs emerging on the inflation picture. WPI has moderated to 7.18% in Dec’12 after averaging 7.63% in the first 9 months of 2012. Moreover, we expect inflation to moderate further to ~6.5% by Mar 2013 and average 6.5-7% for CY 2013. Historically, India’s inflation has had a very strong correlation with global commodity prices. In this regard, the fact that global commodity prices have remained range-bound despite the significant quantitative easing programs announced by western central banks (US federal reserve has committed itself to expand its balance sheet by ~$1 trillion in 2013) is a significant positive for our inflation picture. Another big positive is that the growth slowdown should have resulted in excess capacity In the economy – thus mitigating inflationary forces in the economy. One key point to note here is that increase in diesel prices (the steps announced by government recently) are a significant positive for the economy even though there may be a 50-75bps incremental impact on inflation of the diesel price hikes in the short run. Diesel price hikes are a significant positive because it releases our suppressed inflation and thus removes one of RBI’s key concerns regarding lowering interest rates. Debt Market Outlook After WPI printed 7.18% in mid January 2013, significantly lower than market consensus and much below RBI’s own fan chart on inflation, gilts rallied and 10 year benchmark briefly touched 7.80% in expectation that RBI may cut repo rate by 50 bps. However after this brief euphoria, market woke up to the hawkish comments from RBI governor on still elevated level of inflation in the economy. These comments spooked the bond markets and reduced the possibility of RBI doing anymore cut than 25 bps on repo. In the monetary policy, the RBI did stick to only 25 bps cut in repo and also delivered 25 bps cut in CRR. In its post policy con-call and post policy interaction with media, RBI expressed its discomfort on the level of current account deficit (CAD) of the country, something that had made us equally worried in the recent past especially after seeing 5.4% CAD in Q2FY13 especially at a time when domestic growth has slowed down significantly. With CAD ruling very high, inflation expected to hover around 6.5%-7% in 2013 and domestic growth bottoming out, we feel it is a highly unlikely that the RBI will deliver aggressive rate cuts in this cycle something that was seen during 2001-03 and 2009-10. We believe that terminal repo rate in this interest cycle, may at best be 7.25% and that this repo rate will be visible not before H2CY13. The anomaly is that by the time the terminal repo rate will drop to 7.25% the worries on fiscal account due to nearing General Election would begin to resurface. We may see the ruling party being aggressive on social spending (e.g. a big push on food security bill) going into election, we may see some of the current reforms being halted (e,g, a halt in monthly Diesel price hikes) or even unwound. Overall CY13 will be a year of 2 halves. In the first half we will have lot of good news on fiscal front, on reforms front and bit on monetary policy front but it is difficult to say how many of these fiscal measures will stay as the General election approaches. In the last 1 year, 10yr gilt has rallied by almost 100 bps. We were at 8.78% in April 2012 and touched 7.80% in Jan 2013. Of this 100 bps, almost 40 bps rally was witnessed in Dec-Jan itself. If you can recall, we had given a call in the month of August when 10 year Gsec was hovering at around 8.25%, that 10 yr yield will go to 7.50%. Of the 75 bps rally that we had talked about, 45bps panned out by Jan 2013. In all our duration portfolios, viz; Dynamic Bond Fund (DBF), Income Plus (BIP) and Govt. Securities Fund – LT we played this rally with a very high level of conviction. At peak our exposure to gilts/ SDLs (SLR securities) across our duration funds was much higher compared to many of our competitors. In DBF we had a peak exposure of 23%, in Income Plus the exposure was 86% and in our gilt funds the exposure was 95% to SLR securities. We also played this rally chiefly through gilts than through SDLs. We reduced our exposure to gilts across our funds in 7.80-84% yield band. This is because with sharp rally already behind us, quantum of balance rate cut being small and timing of rate cuts being well spaced out, we believe it may not be possible for 10 year to go near 7.50% anytime soon. From here till April, we do not see any great triggers that may result into another 20-40 bps rally. At best the market may stay range bound between 7.80-8% till April 2013. Going forward, increase in duration in our funds will be based on evolving macro-economic developments and market technicalities. In our DBF, Short Term Fund (STF) and our other ultra short term funds, we are readying ourselves to play yield curve inversion going into March. We will play this opportunity in BIP too, while taking tactical calls in GOIs/ SDLs/ Corporate bonds as and when the opportunity arises. Our advice to investors would be to stay invested in duration funds at this point of time as we believe another 25-50 bps repo cut is a good possibility; however we would like to caution our investors that the past performance, especially the recent one may not be repeated as we pass through a tumultuous period going ahead. 02
Savings Solutions What are Saving Solutions? Our Savings Solutions are aimed at preserving your money, providing you with liquidity and giving you superior tax-efficient returns compared to bank accounts and FDs. Who can benefit from Saving Solutions? This is an ideal solution for investors who have low - medium propensity for risk and high liquidity. These can be ideal for first time investors in mutual funds. Regular Income Solutions What are Regular Income Solutions? Our Regular Income Solutions aim to preserve your money and provide regular income. Who can benefit from Regular Income Solutions? This is an ideal solutions for investors who are interested in alternative modes of regular income, either in present of after retirement stage, and have low propensity for risk. (Regular income is not assured & is subject to availability of distributable surplus.) Wealth Creation Solutions What are Wealth Creation Solutions? Our Wealth Creation Solutions aim to grow your money through equity/gold investments and are available in a range of conservative to aggressive options. Who can benefit from Wealth Creation Solutions? These solutions can be ideal for investors who are planning for future expenses, like higher education of children, marriage, buying a home etc.These solutions are available in the range of aggressive to conservative options to suit the needs of the investor. Tax Savings Solutions What are Tax Savings Solutions? Our Tax Savings Solutions help to reduce your tax burden and at the same time, aim to grow your money through equity investments. Who can benefit from Tax Savings Solutions? Tax saving is important, especially when investors can save up to ` 30,900 in taxes! Section 80C of the Income Tax Act, 1961 provides options to save tax by reducing the taxable income by up to ` 1 lakh. But, wealth creation is also important. Isn’t it? That’s why this solution is ideal for investors who would like to create wealth along with tax saving. Tax savings of ` 30,900 is calculated assuming qualifying amount of deduction is ` 1 lakh & investor falls in the top income tax slab of 30% & includes applicable cess. Investors are advised to consult their tax advisor in view of individual nature of tax benefits. Further, Tax deduction(s) available u/s 80C of the Income Tax Act, 1961 is subject to conditions specified therein. Investors are requested to note that fiscal laws may change from time to time and there can be no guarantee that the current tax position may continue in the future. The Financial Solution(s) stated above is ONLY for highlighting the many advantages perceived from investments in Mutual Funds but does not in any manner, indicate or imply, either the quality of any particular Scheme or guarantee any specific performance/returns. 03
Page 2 and 3: Index All About Mutual Funds 01 Inv
Page 6 and 7: Savings Solutions What are Saving S
Page 8 and 9: Birla Sun Life Cash Manager What is
Page 10 and 11: Birla Sun Life Ultra Short Term Fun
Page 12 and 13: Birla Sun Life Medium Term Plan Wha
Page 14 and 15: Birla Sun Life Short Term Fund (ers
Page 16 and 17: Birla Sun Life Floating Rate Fund -
Page 18 and 19: Birla Sun Life Government Securitie
Page 20 and 21: Regular Income Solutions What are R
Page 22 and 23: Birla Sun Life MIP (An open-ended i
Page 24 and 25: Birla Sun Life MIP II - Savings 5 P
Page 26 and 27: Birla Sun Life ‘95 Fund What is i
Page 28 and 29: Birla Sun Life Top 100 Fund What is
Page 30 and 31: Birla Sun Life Advantage Fund What
Page 32 and 33: Birla Sun Life Pure Value Fund What
Page 34 and 35: Birla Sun Life Small & Midcap Fund
Page 36 and 37: Birla Sun Life Dividend Yield Plus
Page 38 and 39: Birla Sun Life India Reforms Fund W
Page 40 and 41: Birla Sun Life Buy India Fund What
Page 42 and 43: Birla Sun Life India Opportunities
Page 44 and 45: Birla Sun Life Asset Allocation Fun
Page 46 and 47: Birla Sun Life Commodity Equities F
Page 48 and 49: Birla Sun Life International Equity
Page 50 and 51: Tax Savings Solutions What are Tax
Page 52 and 53: Birla Sun Life Tax Plan What is it?
Page 54 and 55:
Fund Manager-wise Scheme Details Sr
Page 56 and 57:
Funds at a Glance LIST OF PLANS/OPT
Page 58 and 59:
Funds at a Glance WEALTH CREATION S
Page 60 and 61:
Investment Objective WEALTH CREATIO
Page 62 and 63:
Dividend History (For select Scheme
Page 64 and 65:
Industry Allocation WEALTH CREATION
Page 66 and 67:
Industry Allocation Birla Sun Life
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Empower for the Month of February 2013 - Birla Sun Life Mutual Fund

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