OUTLOOK 2019

2018 –
YEAR IN REVIEW &
LOOKING AHEAD
The Topsy - Turvy Year -
RETURN OF
VOLATILITY

If 2017 was characterized by low volatility across asset markets, 2018 saw the return of volatility albeit with
vengeance. Market trends switched abruptly, wrong footing market participants and investors alike causing angst and
dismay. Talking points for the year revolved around a wide range of topics including Currency, inflation, interest rates
and NBFC’s amongst other on the domestic front. Crude oil, US Tech stocks, Brexit and the US- China Trade war buzz
set the global trend of the markets this year. The result – a tough market for active investors – especially domestic equity
fund managers, many of whom struggled to outperform their respective fund benchmarks.

12,000 23.0%

11,500 21.0%

19.0%
11,000
17.0%
10,500
15.0%
10,000
13.0%
9,500
11.0%
9,000
9.0%
8,500 7.0%

8,000 5.0%
7
17

18

18

18

18

8
6

17

17

7
7
7

-1

-1

-1
-1

-1

-1
-1
-1

g-

n-

g-

p-
b-

b-
n-

p-

ar
ar

ay

ov
ec

ec
ov
ay

Au

Au
Ju
Ju

Se
Fe

Fe
Se

M
M
D

M
D

N
N
M

Nifty 50 Index Volatility (Nifty 50 Index - 25day)

Source: Bloomberg. Data as on 30th Nov 2018. Volatility represented by Standard Deviation.
Past performance may or may not be sustained in the future.
 SECTORAL
Performance

Index Name CY 2017 YTD Index Name CY 2017 YTD

NIFTY AUTO 31.4 -20.7 NIFTY IT 12.2 24.7

NIFTY BANK 40.5 6.8 NIFTY MEDIA 32.7 -27.4

NIFTY CONSUMPTION 45.1 -0.7 NIFTY METAL 48.5 -19.3

NIFTY ENERGY 38.7 1.2 NIFTY PHARMA -6.3 -8.0

Nifty Finance 41.4 10.7 NIFTY PSE 16.5 -21.1

Nifty Financial Services 41.4 10.7 NIFTY PSU BANK 24.1 -17.6

NIFTY FMCG 29.4 14.6 NIFTY REALTY 109.8 -29.9

NIFTY INFRA 34.1 -12.5

Source: ICRA MFI, Axis MF Research. Data as on 19th Dec 2018

Past performance may or may not be sustained in the future.
 GLOBAL MARKETS
A year in reflection

In 2018, global economic growth remained largely stable, but in contrast to 2017, economies saw disjointed growth
across the developed and emerging markets. While the US continued to see robust expansion, data from the Eurozone
and China was pessimistic. At the same time, global monetary policy saw tightening as global central banks stepped
back from their long-standing expansionary policies. While this move was choreographed across global borders, a
decade of complacency by market participants caught them unaware as markets adjusted for a higher interest rate
environment. Debt markets too, were faced with marked to market losses as credit spreads especially in lower rated
securities ballooned.

US Corporate BBB Spread over

As the US Fed raised rates... 10 Year Treasuries saw their highest
levels since 2016
2.5

2 1.78
1.8
1.5 1.63 1.58

1.6
1
1.44 1.48
1.44
0.5 1.4
1.2
0 1.2
Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18
Dec-17
Dec-15

Dec-16

Dec-18
Dec-14

Dec-17

Source: FRED, Bloomberg, Axis MF Research,

THE
CHINA IMPACT
The aggressive trade stance that the US has struck since
the start of 2018 remains a significant threat to smooth
economic function and the frictionless flow of goods around the
world. Companies with a supply chain heavily reliant on China could
be faced with 25% tariffs on exports to the US in 2019. We could, equally,
see a trade deal with lower barriers than we had before. These are clearly two
very different cost and business environments and makes planning extremely hard for
companies.

Baltic Dry Freight Index

1772
1700

1500 1395 1406

1300

1100
1042

900
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Source: Bloomberg, Axis MF Research. Data as on 17th Dec 2018

Brexit
Brexit has been an overhang on Europe in general especially the British pound which saw its most volatile year
since the financial crises. As negotiations between the EU and UK draw to a close, the Theresa May government
has been on tenterhooks as the possibility of a ‘No-Deal’ outcome of the brexit negotiations have become a
plausible outcome. The date for the formal exit from the Eurozone is 29th March 2019. As the due date draws
nearer, specifics of the exit and a possible fresh referendum may drive market sentiment for European investors.
 DOMESTIC
MARKETS
Resilient india

The local economy showed clear signs of a pick-up in

growth – although the revival was not as consistent or
New challenges are facing the economy as we
broad based as had been expected at the beginning of turn the year – Tepid food inflation is an
the year. This reflected in continued disappointment in indirect indication of the stress in the rural/
earnings growth for the broader market. farm sector. Large MSP increases that were
announced this year have not had much of an
impact. Disruptions in the NBFC sector can
16% impact flow of retail credit – given their
14% disproportionate presence in that space. Also
12% with the general election approaching, there
10% are risks of government taking populist steps
8% that put fiscal targets at risk. Despite all
6% challenges however, we expect the economy
4% to continue to build up momentum primarily
2% driven by consumption demand and improving
capacity utilization is likely to lead eventually
Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-18

Jun-18

Sep-18
Mar-17

Jun-17

Sep-17

Dec-17

to a pick-up in domestic capex. Growth

Corporate Revenue, YoY (ex energy and fin)
environment is also supported by low inflation
that is putting off pressure for rate hikes as
18% well as a sharp fall in commodity prices
16% including – most importantly – crude oil. The
14% banking system is slowly but surely getting
12% back on its feet as incremental NPLs have
10% started to come off and some of the pending
8%
big ticket cases have started getting resolved
6%
through the NCLT process. The government
4%
has continued to push on improvements in
2%
ease of doing business and competitiveness
Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-18

Jun-18

Sep-18
Mar-17

Jun-17

Sep-17

Dec-17

indexes which is helping India attract the

attention of global capital flows.
BSE 500 Corporate Revenue, YoY (ex energy and fin)

Source: Morgan Stanley, Capitaline, Axis MF Research.

 NIFTY ROE (x) - 1 Year Forward
19.5

17.0

10 Year Avg: 15.1x 15.6

14.5

12.0
Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18
Source: Motilal Oswal. Data as on 18th December 2018.

CAPACITY UTILIZATION
at five-and-a-half-year high
Buoyant consumer demand and heightened manufacturing activity in the economy has led to the highest capacity
utilization in 5 years. Dearth of capital expansion stemming from over expansion in the previous business cycle
has been a drag on the industry grappling with large unused capacities and tepid demand. Streamlining of
regulatory framework and improving business sentiments domestically has corrected years of demand supply mis-
match. The high operational gearing in this industry is likely to aid corporate profitability going forward as
companies effectively manage marginal costs and capital allocation.

Manufacturing Capacity Utilisation Long Term Average Manufacturing PMI also indicates
hightened business activity

84% 55
54.7 54.4
82% 54.4

80% 53 52.5
78% 52.4
76.1%
76% 51
74%
49.6
72% 49 49.1 Manufacturing PMI
Long term Average: 74.9%
70% 47.9 Average
68% 47
Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-18

Jun-18

Sep-18

Dec-18
Mar-17

Jun-17

Sep-17

Dec-17
2QF11
4QF11
2QF12
4QF12
2QF13
4QF13

2QF15
4QF15

2QF19
2QF16
4QF16

2QF18
4QF18
2QF14
4QF14

2QF17
4QF17

Source: RBI, Morgan Stanley Research, Axis MF Research. PMI above 50 indicates an expansion of business activity.
EASE OF DOING BUSINESS
India has jumped 65 places since 2015

India witnessed a 23-notch jump to a record 77th position in the World Bank’s latest report on the ease of doing
business that captured the performance of 190 countries. The country showed an improvement in six of the 10
parameters, having witnessed a leap of 129 notches in the ever-laggard ‘construction permit’, 66 in ‘trading
across borders’ and 19 in ‘starting a business’. The country’s rank under the current NDA government jumped
from 142nd in the World Bank’s 2015 report (which reflected reforms undertaken mostly up to May 2014) to 77
now. The move in the rankings has been the sharpest by any country.

World Rank Improved

Construction permits Trading across borders Starting a business

181 52 146 80 156 137

2018 2019* 2018 2019* 2018 2019*

World Rank Worsened

Registering property Paying taxes Resolving insolvency

154 166 119 121 103 108

2018 2019* 2018 2019* 2018 2019*

*Based on perception of reforms in the year through May, 2018 except for paying taxes); survey captures 190 countries
Source: World Bank’s Doing Business 2019 report
Source: World Bank, Axis MF Research

Overall ease of doing business Rank under India Regime#

2018 2019*
2015

2016

2017

142 131 130

2018

2019

100 77
100 77
#Each year’s rank reflects reforms undertaken up to May of the previous year.

Source: World Bank, Axis MF Research

 The advent of affordable smartphones and fast 4G networks
has revolutionizing connectivity over the last couple of years.
India now has the world’s second-largest internet user base.

DIGITAL Further, it is a leader in mobile internet usage, with close to

80% of its web traffic accessed through mobile phones (as

TRANSFORMATION compared to around 55% for China and a global average of

50%). This is giving rise to unique mobile-first business models
and is reshaping industries, including e-commerce,
entertainment and the sharing economy.

India likely to be 3rd biggest ecommerce market and the largest consumer of data globally!
Data usage per data subscriber per month (GB)
China 710
1.1 2.1 2.8 3.2 1.0 8.3
US 629
India-2028 383 *Projected

Japan 132
UK 114
Germany 97
France 76
Korea 71
Canada 41
India-2017 40

Russia 30
Brazil

Indonesia

China

Russia

India
(2016)

India
(2018)
Indonesia 11 (US$bn)
Source: Morgan Stanley Research, Vodafone Idea IR Presentation, Axis MF Research

...and there is still a long way to go with the untapped population potential

% of population India Subscriber base (bn)

11
26
47 41 42 Broadband 0.5
27 Subs
14 73

17 Active Subs 1.0

38 42
62 60
36 21
22 Total Subs 1.2
15 7
Japan USA China Brazil Mexico India Rural Urban
0.5 bn 0.6 bn
Online Shoppers Online but not Shopping 58% pen* 156% pen*
Not Online
Source: Vodafone Idea IR Presentation TRAI, WEF, Axis MF Research
Technology is also allowing for dramatic
changes to the payments infrastructure.
Aadhaar provided the framework for the
launch of a national digital payment 600 UPI Transactions Amount
system – the Unified Payments Interface (` bn)

(UPI) that allows users to make money

400
transfers with their mobile phones. In a
country where cash has been king, mobile-
200
based digital payments are completely
changing the landscape. Since its launch,
0
UPI has shown rapid growth and will start
18

18
16

17

17

-1
-1

-1

-1

b-

g-
g-

b-

g-

ay
ov

ay

ov

to allow all sections of the population to

Au
Au

Fe
Au
Fe

M
N

participate in the formal economy. Source: PMJDY, NPCI, Axis MF Research,

CURRENCY
TURMOIL
Déjà Vu, Sans Panic
Five years after the previous episode, India once again
found itself in the cross-hairs of global currency market
turmoil. The Rupee faced a burgeoning US Dollar
depreciating ~15% before stabilizing towards the end of
the year. The year-end ‘Santa’ rally coupled with a plunging
crude gave the government much needed breathing room.

The Rupee had rallied sharply during 2016-17 and as a

result had become overvalued in REER terms. The over-
valuation started reflecting in some loss of competitiveness
for the economy – as evidenced by a rising current account
deficit. This coupled with the rising US rate cycle, a broader
sell-off in EMs, rising crude oil prices, and an overall risk-off
sentiment, precipitated the sell-off in the Rupee. A notable
feature is that while the sell-off has been sharp against the
US Dollar, in relative terms, the INR maintained its strength.
In fact the extent of the out-performance during 2016/7
meant that despite the current sell-off the INR remains one
of the top performing EM currencies over the last 5 years.

The INR Saw a return to fair value during the year.

125

120

Average REER: 114.71

115
to
v i ng itory
110 mo err
u p ee lued t
R rva
105 ove
18
16

16

16

18
14

15

15

15

18
17

17

17

8
-1
-1

-1

-1
b-
b-

g-

v-

g-
v-

b-

g-

v-

v-
b-

g-

v-
ay
ay

ay

ay
No
No

No

Au

No
Au
Fe
Fe

No
Au
Fe

Au
Fe
M
M

M
And yet remained one of the best performing EM currencies in the midst of rising concerns over the health of EM
economies

Returns for last 5 years

Argentina -83.3%

Turkey -61.9%

Russia -50.5%

Brazil -39.9%

Mexico -36.1%

Malaysia -22.6%

Indonesia -16.5%

India -13.3%

China -11.8%

Taiwan -3.9%

Source: Bloomberg, Axis MF Research Data as on 30th Nov 2018. Sovereign currency returns relative to USD.

Given stability on inflation and crude prices, for now it looks like the pressure has eased on the currency. Minus a
global shock, we expect the INR to remain range-bound in the coming year.
 ELECTORAL
REVERSALS
One Year Is a
Long Time in Politics

The ruling NDA had consolidated their position in 2017 with wins in several key states including UP and Gujarat.
However, 2018 saw them losing power in MP, Rajasthan and Chhattisgarh as well as missing out narrowly in
Karnataka. As the year draws to a close, the opposition is getting more vocal on creating a grand alliance to take
on the NDA in the general elections and the elections seem more open than what observers were expecting last
year. The first half of the coming year is likely to see a lot of political noise as markets and players try to figure out
which way the wind is blowing. From the market’s perspective, it is generally seen that a verdict which gives clear
majority to any dispensation is always preferred over a fractured verdict that has the risk of policy paralysis.
Although it is also true that the impact of election results tends to be more short term in nature and invariably gets
overshadowed eventually by the state of the economy and earnings growth.
 SENSEX AND
GENERAL ELECTION

PRE-
ELEC- SEN- SEN-
ELECTION CED-
TION SEX SEX DIFFERENCE
DATES ING
YEAR PTS. PTS.
YEAR

Nov 2 - Nov 26, 1989 Nov 21, Nov 21,

715 718 -3
1989 1988

May 20 - June 15, 1991 May 17, June 13,

1,297 781 516
1991 1990

April 27 - May 30, 1996 April 26, April 26,

3,765 3,264 501
1996 1995

Feb 16 - Feb 23, 1998 Feb 14, Feb 15,

3,373 3,521 -148
1998 1997

Sep -Oct 6, 1999 Sep 3, Sep 3,

4,709 2,918 1,791
1999 1998

April 20 - May 10, 2004 April 19, April 17,

5,800 2,984 2,816
2004 2003

April 16 - May 13, 2009 April 15, April 15,

11,284 16,153 -4869
2009 2008

April 7 - May 12, 2014 April 4, April 13,

22,359 18,801 3,558
2014 2013
 OIL
How to go from
structurally bullish
to structurally bearish
in two months

Crude has been an impediment to the India story over the past few quarters. From a low in 2016 of
approximately US$30/barrel, crude prices jumped to US$82/barrel in Mid-September 2018 raising concerns on
inflation and a possible breach of the fiscal deficit targets. A sharp reversal over the past few months has raised
optimism levels given India is a large crude importer. This has also reflected positively across rates and the
currency. We anticipate crude to remain fairly volatile over the next year given heightened geo-political tensions
and the demand supply mismatch.
STYLE
PERFORMANCE –
Quality outperformed
Value during the year

110
Style Performance/Trends
100

90

80

70

60
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
-17 -18 -18 -18 -18 -18 -18 -18 -18 -18 -18 -18

S&P BSE Quality Index S&P BSE Enhanced Value Index

Source: Asia Index Private limited, Axis MF Research. Normalized performance chart from
1st Jan 2018 to 21st Dec 2018.
Past performance may or may not be sustained in the future.

Political and macroeconomic uncertainty drove investors to perceived safe haven stocks through the year creating
a clear demand for fundamentally sound stocks with strong earnings growth and niche business models. A style
analysis of gainers and losers shows quality stocks outperforming value stock styles during the year. The
performance has been a common theme even on longer term performance tenors over 3 years and 5 years.
 Quality has outperformed value over the longer term as well

23.1%
1 Year

5.8% 3 Year

5 Year
10.9%

Source: Asia Index Private limited. Data as of 21st Dec 2018. Alpha is calculated as the differential performance on various time lines between S&P BSE Quality
Index and S&P BSE Enhanced Value Index. Past performance may or may not be sustained in the future.

At Axis MF, since inception in 2009 our investment philosophy has focused on quality companies as an underlying
theme while building and managing portfolios. We primarily follow bottom-up stock selection approach with a
minimum 2-3-year view on stocks. Bias towards sustainable growth and strong fundamentals are the key look
outs for our fund managers in identifying investment ideas. This steadfast adherence to quality has reflected in
our equity fund performances over the medium and long terms. Coupled with our investment philosophy our
brand focus on responsibility also plays a key role in our commitment to investors and stakeholders. Our
commitment to responsible investing is imbibed into our research process through continuous monitoring of
portfolio stocks and interacting with company managements periodically to understand the nitty gritties of our
portfolio companies while constantly evaluating/re-evaluating our investment case for these companies.

In Summary… News Drove the Markets!

39000 Concerns of systemic

Crude breaches $80/ RBI announces a limited
Govt announces extension for Mr. Rana liquidity risks in the
barrel, highest since
Bank Recap Kapoor's tenure as MD and NBFOs and HFOs.
Dec 2014
38000 CEO, until 31st Jan, 2019 Govt announces
Union Budget F19-Govt merger of 3 PSU
introduces Long Term banks
Capital Gains Tax on CCEA approves
37000 Equities RBI eases liquidity
increase in MSP for requirements and steps up
Kharif crops for OMO purches
RBI removes min. 2018-19 season
maturity cap for FPI
36000 investment in bond
RBI keeps market
policy rates
unchanged No confidence
35000 motion against
NDA govt. held

RBI hikes RBI's OMO purches

rates by 25 FX reserves decline continued with
34000 INR 1.6tn in FY19
bps to 6.25% by most since 2011
GST out on till date
a range of
products
33000 PNB bank detects BJP falls short of India's rank in ease of Congress wins 3 out of
IMD predicts doing business improves 5 state elections, with
fradulent transactions at majority in Karnataka;
monsoon at significantly from 100 last the regional parties
it Mumbai branch worth Cong-JD(S) stich
97%LTA year to 77 winning rest
US $1.8bn alliance
32000
Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Source: News articles, Bloomberg, Axis MF Research. S&P BSE Sensex. Past performance may or may not be sustained in the future.

While news drove markets this year, quality companies remained a standout performer for the year. We anticipate
that quality will continue to remain a resilient performer on account of strong underlying fundamentals. As the
saying goes, stock prices are slaves to corporate earnings. The market has differentiated companies who have
consistently performed despite short term market sentiments.
 FIXED INCOME
– All’s Well
That Ends Well?

Fixed income markets have been under pressure from 2017, with the benchmark 10 year yields pushing relentless
higher from their demonetization lows. In 2018, the yields came under further pressure on the external account – with
FII selling, Rupee and crude pressures all playing a part. However, sentiment has shifted remarkably as we close the
year.

Debt investors in the short to medium term space have been rewarded as they rode the see-saw moves in the debt
markets. The year is likely to end with debt returns outperforming equity markets in many debt mutual fund categories.
Credit risk was brought to the forefront once again, thus highlighting that debt funds are not risk free investments and
investors should heed caution while investing in relatively high risk high reward debt products. The higher credit risk
scenario has since diminished as reflected in the normalized prices across the yield curve

India remained a relative favorite with foreign investors looking at emerging markets despite the overall global shift
away from EMs. This is due to the bright spots of opportunity India continues to offer. It also retained its tag as the
fastest growing nation by GDP growth rate as growth waned across most of the developing world amidst a sagging
global economic environment. Currently, India continues to offer high real rates and a stable currency and hence
remains a strong contender for foreign debt capital.

GDP numbers should be seen in context of a normalizing base post the GST implementation last year. While the full
impact of GST on the GDP base has not been captured, we anticipate the high crude oil prices during the quarter may
have exasperated the downtick. This is likely to get balanced out in the coming quarters. The long term story continues
to remain intact given the strong high frequency numbers and strong corporate earnings.
 CONCERNS
OVER LIQUIDITY
The IL&FS default sent shockwaves across the NBFC space in early August 2018 as concerns
over asset liability mismatches and poor risk management protocols in the quest for a
growth blitzkrieg were brought to the fore. Timely action by the RBI and confidence building
measures by the government alleviated much of the contagion risk. An already dislocated
bond market favoring short tenor debt instruments saw some degree of aggravation as
market participants took a back seat and were in a wait and watch mode as news flow drove
debt market valuations. This was a short term market liquidity crunch and re-emphasized the
need for continuous credit evaluation and responsible investing. Fund houses with
prudent lending philosophies and strong credit appraisal processes came out as
big winners setting an example for the rest of the industry. The market is
now slowly finding its way back to normalcy as rates have
returned to pre-crises levels.
RBI
UNDER
SPOTLIGHT

2018 was an eventful year for debt

markets as well as their regulator (RBI). From a
clamor for rate hikes to a whisper of rate cuts, the year
has seen it all and the RBI has had to navigate a dynamic macro
environment. While they deserve credit for holding their nerve against the
currency market sell-off, their inflation forecasts have been under the scanner for missing the
actuals by a wide margin. On policy front, the RBI became more activist during the year as they
forced management changes on several private sector banks as well as maintained pressure to clean up
(through PCA norms) the weaker PSU banks.

Towards the end of the year the focus moved to the talk of disagreements between the RBI & the government as well
as RBI’s management of the repercussions of the IL&FS default and the risk of contagion in the NBFC space. With a
new Governor in place as we close the year, the spotlight will continue to be on the RBI in the coming year as well.

We do not believe that there is a material risk of financial instability and hence the RBI is likely to continue to focus
on inflation trajectory. With the current inflation trajectory and RBIs inflation projection for the year at 4%, we don't
see significant moves on the repo rate front for a prolonged period.

Crude Oil - Rise and Fall A Volatile G-Sec Market

90
50 per. Mov. Avg. (10
Brent crude price ($/barrel) 10 year G-Sec Yield(%)
86.29 year G-Sec Yield(%))
85

80 8.2 8.18

8.0
75
7.8
70
7.6
65
7.4
60 62.79
7.2
60.20 7.16
55 7.0
Nov-17 Feb-18 May-18 Aug-18 Nov-18 Nov-17 Feb-18 May-18 Aug-18 Nov-18

Source: Bloomberg, Axis MF Research. Data as on 30th Nov 2018

INFLATION
Inflation remained a talking point through the year as inflation
remained subdued on the back of weak food inflation figures. Below
normal monsoons for the year and MSP hikes failed to buoy the rural
economy as logistical problems continue to mar farmer incomes. Rural
consumption hence remained benign. RBI lowered its forecasts for inflation twice
during the year underpinning the RBI’s concern over the weak inflation numbers.
Core inflation saw a rebound during the year with November numbers surpassing street estimates at ~6%.
Manufacturing inflation was also elevated as higher consumption and raw material prices drove up cost of
manufactured goods for the year. This is however likely to normalize over the coming months as commodity prices
have nosedived yet again.

Inflation Remained Beneign on low food inflation

6.00

5.00 4.92
RBI Target Rate 4%
4.00

3.00

2.00 2.33
1.46
1.00

0.00
Nov-16 May-17 Nov-17 May-18 Nov-18

CPI Inflation (%) RBI Traget Rate

Source: Bloomberg, Axis MF Research. Data as on 30th Nov 2018

FIXED INCOME OUTLOOK
We do not believe that there is a material risk of financial instability and hence the RBI is likely
to continue to focus on inflation trajectory. With the current inflation trajectory and RBIs
inflation projection for the year at 4%, we don't see significant moves on the repo rate front for
the rest of the financial year.

As the shadow of the IL&FS saga and the NBFC liquidity crunch recede, 2019 is likely to be a
better year for debt against the backdrop of lower crude and stable macros. However, the
fiscal position is likely to remain an overhang given that current GST collections are far lower
than budgeted expectations and non-tax revenue growth continues to remain tepid. Also, the
surprise exit of the RBI governor is likely to add to short term uncertainties as the market awaits
the policy changes of the new governor.
Currently, the curve offers significant opportunities from investment perspective as markets are
pricing in more than 1 hike till March 2019. Corporate bonds in the 1-3-year space currently
trade at a premium of 200 bps over the operative rate which we believe offers material
opportunities and hence prefer this space.

Corporate Bonds In The Short Term Continue To Remain Our Top Pick

9.5

8.5

7.5

6.5

5.5
Dec-16 Jun-17 Dec-17 Jun-18 Dec-18

Repo 3 year AAA PSU 3 year G-Sec Yield

Source: Reuters, Axis MF Research. Data as on 21st December 2018.

Past performance may or may not be sustained in the future.
CHART OF
THE YEAR
BITCOIN CRASH
Cryptos discover
the law of gravity

Bitcoin - Bubble Bust

20000

15000

10000

5000

0
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Source: Bloomberg, Coinbase. Data as on 19th December 2018. Axis AMC is not offering a view on crypto currencies. Investing in crypto currencies involves a high
degree of risk and investors should consult professional investment advisors and adhere to regulatory guidelines while investing in such products.
G
iven the mindset around the topsy turvy events in 2018, investors
have varied their move as the perception of risks have continued
to override. In such a situation, it is important that they plan their
investments responsibly than taking sub-optimal decisions.

As the investors are particular about money, we have learnt that what they
want is assurance, not of fancy returns, but of care and concern for their
hard-earned money.

At Axis Mutual Fund, we follow an investment philosophy that puts a strong

emphasis on risk management and with a responsible money manager by
the investors side – what seems risky, wouldn’t seem risky anymore.

Markets don’t create wealth, responsible investing does. Having said that
responsible investing covers all the facets of investing in a more systematic
and channelised manner to ensure that an investor does not chase returns
but plan the journey responsibly towards wealth creation.

Investors should consult a responsible financial advisor who would help

manoeuvre through the nuances of investing and choose a responsible
money manager who is able to pick the good apples (performing stocks
which are very few in number) by focusing on quality and sustainability,
while also managing various risks that are associated with the investment.

Responsible Responsible Responsible

Money Manager Advisor Investing

Promotes
Understands Plan with a goal in
strong corporate
investor goals mind
governance

Educates investors Be rational and keep

Invests in strong
about the right way emotions at bay
business models of investing while investing
Aims for a secular
Recommends funds
growth rate of the Avoid timing the
as per investors’ risk
sector (around appetite market
1.5x - 2x of GDP)

Prepares investors
Manages risks Think long term
for uncertainties
 Disclaimers

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored
by Axis Bank Ltd. (liability restricted to ` 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager:
Axis Asset Management Co. Ltd. (the AMC).

Risk Factors

The analysis covered in this note is as on December 21st 2018. Past performance may or may not be sustained in
the future. The annual outlook should not be construed as an investment advice to investors and should not form
basis of any investment rationale or actual investments. Investors are advised to conduct their own due diligence
and research before investing in equity or debt markets or mutual funds schemes offered by Axis Asset
Management Company limited. Axis mutual fund, its trustees and Axis AMC shall not be held responsible for any
losses suffered by investors investing on the basis of this document.
The material is prepared for general communication and should not be treated as research report. The data used
in this material is obtained by Axis AMC from the sources which it considers reliable. While utmost care has been
exercised while preparing this document, Axis 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. Investors
are requested to consult their financial, tax and other advisors before taking any investment decision(s). The AMC
reserves the right to make modifications and alterations to this document as may be required from time to time.
Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.
This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an
investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management
Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits
that may arise from the use of the information contained herein. No representation or warranty is made as to the
accuracy, completeness or fairness of the information and opinions contained herein.
Stock(s) / Issuer(s)/ Top stocks mentioned above are for illustration purpose and should not be construed as
recommendation.

Mutual Fund Investments are subject to market risks, read all

scheme related documents carefully.