Annual Report for Fixed Maturity Schemes - Tata Mutual Fund

Annual Report
2011-2012
During FY12, the repo rate was increased by 175 basis points from 6.75% to 8.50%, with the last increase of 25 basis points effective
from October 25, 2011. However, considering the moderation in economic growth and the inflation trajectory, RBI in its mid-quarter
monetary policy review in December 2011 paused further tightening of policy rates. In the third quarter monetary policy review announced
in January 2012, RBI reduced the cash reserve ratio (CRR) by 50 basis points from 6.0% to 5.50%. CRR was further reduced by 75 basis
points in March 2012 to 4.75%. In its annual policy review for fiscal 2013 announced in April 2012, RBI reduced the repo rate by 50 basis
points to 8.00%.
Liquidity in the system continued to remain in deficit through FY12, mainly on account of RBI intervention in foreign exchange market to
support depreciating rupee. RBI sold over USD 20 billion during the year to support rupee, which further exasperated the liquidity deficit
in the system. As a Compared to an average borrowing by banks under the liquidity adjustment facility (LAF) window of RBI of Rs. 471
billion in FY11, average borrowing increased to Rs. 799 billion in FY12. The liquidity deficit crossed Rs.1.00 trillion from November 2011.
The average daily borrowing touched a peak of Rs.1.96 trillion in end-March 2012. In view of the tight liquidity conditions, apart from the
reduction in CRR, RBI also injected liquidity through open market operations aggregating around Rs.1.30 trillion between November 2011
and March 2012.
The yields on the benchmark 10 year government securities increased by about 55 basis points to 8.54% at March 30, 2012 from 7.99%
at March 31, 2011. The yield on 5 year and 10 year AAA corporate bonds closed the year at 9.55% and 9.51% respectively, from 9.23%
and 9.15% at March 31, 2011. Due to tight liquidity conditions, the short term money market rates also moved up significantly during the
year. While the 3 month CD rates moved up by 125 bps to close at 10.7% compared to previous year’s closing of 9.45%, the 12 month
CD rates closed at 10.15%, up 65 bps respectively compared to previous year’s close of 9.5%.
Future Outlook:
Equity
In FY12 emerging market economies have been impacted by sluggish growth of developed economies and tightening of monetary
policy to control inflation. However, now that their growth is slowing, many emerging markets like Brazil, China, Indonesia, India, Israel
and Thailand are increasingly using their greater monetary capacity to cut interest rates/ cost of capital as compared to the developed
economies that are already at near zero interest rates, to support economic growth. Debt overhang in the developed nations will take
time to work out of the system. Considering these facts we think longer term emerging markets are well placed in terms of future growth
prospects vis-à-vis the developed economies.
As per the latest census (2011), India now has a population of 1.2 billion (17.5% of world population) from 1 billion in 2001, marking the
slowest decade of population growth since 1951 of 1.6% per annum (2% per annum in the 1991-2000 decade). Urbanization has risen
from 27% of population in 2001 to 31% of population in 2011. A young population , rapid urbanization, improving social indicators like
literacy , sex ratio etc. indicate towards a secular trend in favour of discretionary consumption like durables, personal products, packaged
foods, housing etc. and for services like education which are seen as a means to achieving a better standard of living.
While investors may be concerned about the macro-economic challenges faced by the Indian economy, it may be noted much of these
issues have arisen due to supply side bottlenecks on various fronts like infrastructure, energy, minerals and labour. Most of these issues
can be addressed through appropriate government policy response to encourage capacity addition and increase the country’s growth
rate. While the macro headwinds remain challenging currently, it is important to remember that wealth is generated in the equity market
by buying superior businesses at reasonable prices in times of such worry. A portfolio made of such businesses is likely to ride out
challenging times and generate returns well into the future; though in the near term volatility can be high.
Debt
RBI has projected India’s GDP to grow by 7.3% in fiscal 2013 and inflation to be at 6.5% in March 2013. However, given the current
macro-economic environment, there is a downside risks to RBI’s growth projections. In view of the weak growth scenario, RBI is likely to
take further steps towards monetary easing, which will reduce the interest rates significantly during the fiscal 2013.
FUNDS UNDER MANAGEMENT – OPERATIONS
Tata Mutual Fund as on 31 st March’2012, manages forty two open ended schemes of which seventeen are equity schemes, two are
balanced schemes, twenty two are debt schemes, one is Equity Linked Saving Scheme (ELSS) and forty close ended schemes of which
two are equity schemes, thirty five are debt schemes, one is balanced scheme and two are Equity Linked Saving Scheme (ELSS). The
average net assets under management were Rs19091.14 crores as on 31.03.2012.
Investment objective, policy and performance of the schemes of Tata Mutual Fund are given in Annexure I.
2. Brief Background of Sponsors, Trust, Trustee Co. and Asset Management Company (AMC).
a) Tata Mutual Fund
Tata Mutual Fund (TMF) was set up as a Trust by the Sponsors and the Settlers, Tata Sons Limited (TSL) and Tata Investment Corporation
Limited (TICL) on 9 th May, 1995 with Tata Trustee Company Limited as a Trustee in accordance with the provisions of the Indian Trusts
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