Annual Report for Fixed Maturity Schemes - Tata Mutual Fund

REPORT OF THE TRUSTEE TO THE UNITHOLDERS
FOR THE YEAR ENDED 31 ST MARCH, 2012
Dear Unitholder,
It gives us great pleasure to enclose schemewise audited financials as on 31 st March, 2012. This Report is in continuation of the ‘Performance
and Portfolio of the Schemes’ Report as on 31 st March, 2012 published by us earlier.
1. Scheme Performance, Future Outlook and Operations of the Schemes
The year that was:
Equity:
In the Financial Year 2011-2012 (FY 12), global worries on account of European Union sovereign debt crises, and India specific factors
like persistent high inflation and slowdown in investments and infrastructure roll out resulted in a cautious and sombre mood in the Indian
equity markets. While the European Union sovereign debt crises caused worries on world growth, rising inflation due to fiscal stimulus
in the previous years and supply side constraints, limited the level of central bank monetary intervention, stressing monetary policy to its
limit at a time when fiscal consolidation is tough to come by.
Indian equity markets ended the FY12 with BSE Sensex down by 10.5% and Nifty down by 9.2%, and overseas investors took a bigger hit
since the Indian rupee depreciated by 12.4% against the US dollar. The fall in the indices means that in terms of valuations, BSE Sensex
was quoting at around 13-14 times forward earnings by the end of FY12, which is below the long term averages.
We began FY12 with Standards and Poor’s reaffirming India’s investment grade rating with stable outlook, only to have a negative outlook
comment come up in April 2012. On the monetary policy front too we had RBI hike its key policy rates by 1.75% in the fiscal to tackle
inflation during the fiscal, a position that was reversed in April 2012 with a cut of 50 bps as outlook for economic growth was threatened.
During the year, large cap stocks underperformed the mid-cap stocks reflecting their greater exposure to global concerns; however
liquidity issues caused small-cap stocks to significantly underperform both the other capitalisation indices. Sectorally, investors bought
the India domestic consumption story, with sectoral indices like auto, FMCG, health care, consumer durables and software(owing to its
currency play angle) outperforming the BSE Sensex, while sectors like banks, capital goods, metal, oil & gas, power, PSU and realty
underperformed the BSE Sensex.
The Union Budget for fiscal 2013 (FY13) was presented in the background of fiscal and political constraints. The thrust areas of the budget
are giving impetus to growth by focusing on incentivizing investments, fiscal consolidation through widening of tax base and reducing
subsidy, financial inclusion and improvement of governance through the unique identification scheme and anti-corruption legislation. The
budget targets a fiscal deficit of 5.1% in FY13 from 5.9% in FY12. The budget raised service tax and excise duty each from 10% to 12%,
while widening the net of service tax net to include all services except a small negative list. The budget divestment targets are modest,
but fuel subsidies seem understated. The budget figures are based on assumption of a 14% nominal GDP growth.
GDP growth for the fourth quarter FY12 was reported at 5.3% YoY (9.2% YoY same period last year). On a yearly basis, analyzing by
activity, the GDP grew by 6.5%YoY in FY12; industry posted weaker growth of 3.4%YoY from 7.2% YoY in FY11, and agriculture posted
a growth of 2.8% YoY from 7% YoY in FY11, while services sector growth (constituting 59% of GDP) was strong at 8.9% YoY from 9.3%
YoY in FY11. On an expenditure basis, investment growth almost halved to 5.5% YoY from 11.1% YoY in FY11. Consumption growth came
at 5.4% YoY for FY12 from 8.1% YoY in FY11 due to slow down in both private and public consumption expenditure. Net exports on the
other hand posted a deeper contraction of 7.4% YoY in FY12 from contraction of 6% YoY in FY11.
In terms of corporate results for the broad market, thanks to high inflation, the sales of companies in value terms for the first three quarters
of FY12 was at 20%+; however in line with slowing economic growth, the sales growth in value terms came down to mid-teens in the 4th
quarter of FY12. The operating margins of companies were hurt by rising wage costs and higher raw material/ commodity prices and net
profit margins were also hurt by higher interest costs especially for the highly leveraged companies. As a result, the net profit growth for
the corporate lagged the sales growth of companies.
Debt:
Fiscal Year 2011-12 (FY 12) was a difficult year. The Index of Industrial Production (IIP) recorded a growth of 2.8 % during FY12 compared
to 8.2% in FY11. The mining sector declined by 2%, while the manufacturing sector recorded a growth of 2.9% and electricity sector of
8.2%, as compared to growth of 5.2%, 9% and 5.6% respectively in FY11.
Inflation, measured by the Wholesale Price Index (WPI), remained above 9.0% levels between April-November 2011 but moderated
thereafter to end the year at 6.9% in March 2012. Average inflation for FY12 was 8.8% as compared to 9.5% in FY11. The decrease was
largely driven by falling inflation in food articles, which declined from 15.8% in FY11 to 7.4% in FY12. Manufactured products inflation
initially went up to above 8.0% levels till November 2011, but moderated to 4.9% by March 2012.
3