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Investment Insights

Suyash Choudhary

A couple of months back we had highlighted in a note how the sharp rise in AAA bond yields over the past year or so hasn’t been accompanied with a similar rise in yields on lower rated assets. Owing to this, there has been a significant yield compression between AAA oriented short term funds and high yield funds. We had noted that this compression has been largely owing to AAA rates faithfully transmitting the interest rate rise over this period and not due to any sudden change in credit prospects of lower rate bonds. Indeed, such compressions should almost be expected in periods of large interest rate volatility given that AAA rates are more liquid and get better price discovery in the market compared with their lower rated counterparts. To that extent, the intent there was merely to point towards the quantum of spread compression that has occurred and to note that AAA oriented funds are now offering much better risk / reward compared to those in the high yield category. For further details please refer “Value Investing – The AAA Way”, dated 1st March.
 
The intent in this note is to explore and illustrate this same phenomenon further. It is also to ascertain action biases that may threaten to creep into allocation behavior given the context of recent historic returns, during the time when this significant spread compression was underway.
 

Spread Compression And Security Performance
 
graph1_2617

 
 
Source: ICRA/ Crisil Bond Valauation, IDFC MF Estimates
* Calculated as average of all securities maturing in the year 2020 in their respective rating category
 
The graph above quantifies the average spread compression that has occurred between AAA and AA across all securities of a particular short end bucket. As the graph shows, there has been an almost 40 bps compression between the two since March 2017. One aspect of this compression is that the difference in portfolio running yields of a AAA and non AAA fund is now lower, thereby making risk versus reward better for investing in AAA. The other equally important aspect also is that because of this compression, a AAA oriented fund would have under-performed a non AAA fund over this period even if the modified duration of the two funds were exactly the same. This point is demonstrated below, using the example of security performance.
 
graph1_2617

 
Source: ICRA MFI Explorer, ICRA/Crisil Bond Valuation, IDFC MF Estimates
1. Annualized return from 1st April 2017 till 20th April 2018
2. Universe comprises underlying securities of 34 short/medium term funds having a combined AUM of 1.58 Lakh Crore as on March 2018
3. Sovereign- includes SDL and UDAY bonds

 
The table tracks average annualized returns for securities across maturity buckets and ratings over the last one year or so. This period captures the recent episode of extreme interest rate volatility. As can be seen from the table, AA/AA(so)/AA+(so) rated securities have posted an outperformance of between 100 – 200 bps in many cases over this period. The comparison is even starker when compared with bonds in the perpetual category, where one also includes the bank AT1 bonds. Thus some of the lower rated AT1 bonds have outperformed the equivalent AAA by between 200 – 300 bps.
 
Thus a fund with even a 15 – 20% allocation to a basket of such securities would have outperformed a pure AAA oriented fund by a margin wide enough to influence future allocations in its favor.
 
Conclusion : Objects In The Rear View Mirror
 
The past year has thrown exceptional volatility at the fixed income market, resulting in almost a 100 bps odd re-pricing at parts of the fixed income market. Through this period, lower rated / higher yield securities have benefitted as they are traditionally slow to transmit interest rate changes. In many cases the full change may never get transmitted at all given the opacity of that market and because flow dynamics there may from time to time be different than the larger AAA / sovereign market. The objective here has been to show that for the same underlying duration of the fund, merely the allocation effect due to mandate to buy lower rated securities (or not) would have resulted in substantial out/under performance during this period.
 
It is a point of fact that recent historical returns matter for future allocation by investors as well. However, in many cases over the past year the relative outperformance of a fund could merely be because of mandate driven allocation effects to various classes of securities. The question then is whether such outperformance is likely to continue in the future. It is our strong view that this is not likely to be the case. Rather, we would view this recent significant spread compression as an opportunity for investors to rebalance in favor of AAA oriented funds. Not only would this be a move towards better value, but this would also entail a much needed de-risking of fixed income books and make them somewhat more ‘counter-cyclical’ in nature.

 

Disclaimer:
 
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the stocks may or may not continue to form part of the scheme’s portfolio in future. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

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Suyash Choudhary

It may be recalled that the April RBI policy had pleasantly surprised the market, insofar that FY19 CPI forecast was brought down. While the reduction in H1 FY19 forecast was understandable given the lower than expected average for Q4 FY18, what was surprising is that even H2 FY19 forecast was reduced to 4.4% from 4.5 – 4.6% earlier, although with a qualifier that risks were tilted to the upside. Indeed, there was a larger list of upside risk factors including a change in output gap assessment and a higher oil price average.  Even so, and with focus specifically on CPI ex-HRA, the policy had decidedly imparted a dovish signal to the market, as also evidenced in the substantial fall in bond yields post the event (Please refer “Dovish But Hawkish: The RBI Pleasantly Confuses”, dated 5th April for details).

 

Given this context, the minutes of the policy threw a hawkish surprise. The two main points that came across were as follows:

 
1. Concerns with respect to growth that were still evident early in the year, have largely dissipated for all but two members of the MPC.  Most notable is the assessment of Deputy Governor Acharya who says : “RBI’s estimates suggest that output gap is closing; the finance-adjusted measure, which I personally prefer, shows near complete closure of the output gap due to the resilient credit growth over the past two quarters”. To be fair, Dr. Acharya has been noting the progress on output gap in previous policy statements as well. However, given that this should be a slow moving variable and one that is at best imperfectly monitored, the pace of change in assessment is somewhat surprising. Thus in the February policy, Dr. Acharya had noted “for a flexible inflation targeting framework, the growth trajectory relative to potential output has to be considered too. On this front, the output gap remains somewhat negative though it has been steadily closing”. He also said : “While RBI growth projections for next year are in line with this buoyant activity of late, the recovery is nevertheless nascent and worthy of some support in the short run”.  These seemed to indicate that there may be more time before Dr. Acharya were to substantially change his assessment. And yet in the latest minutes he says: “I have moved substantially closer to switching from the neutral stance to beginning the process of withdrawal of accommodation”.

 

Now, it can be argued that the Deputy Governor is only expressing an intention and is still willing to wait for more data before he shifts stance. However, one must remember the importance of signaling effect in central bank communication. As far as the evolution of market’s forward expectation and hence its transmission is concerned, an expressed intent for a near term shift in stance is for all practical purposes already a shift to that stance.
 
2. Almost every member is now concerned with respect to Consumer Price Index (CPI). Even the ultra-dove Dr. Dholakia is acknowledging two-way risks to CPI. Generally, participants seem worried about crude prices, the prospective impact of Minimum Support Price (MSP) hikes, the possible 2nd round effects of state HRA implementation, potential fiscal slippages, survey indicators showing pricing pressures with firms and somewhat higher household inflation expectations. Apart from this, a closing output gap has been highlighted by some members. What is hard to reconcile again is the lower projected CPI trajectory, especially for H2. Thus the same signaling effect as discussed above, was also in play when RBI/MPC marked down their CPI forecasts. The market justifiably thought then that rate hike fears should be pushed back further if the latest available information suggests to RBI / MPC that CPI is likely to average lower than earlier thought.
 

If looked at from these perspectives, the signaling is significantly different between the RBI policy and the minutes thereof, even though on paper the assessments contained in the two documents may not be as different.

 
Way Forward

 
There are decided incremental risks to our macros, some already manifesting and some ahead. We have highlighted some of these recently (please refer “You Want It Darker :  A Bond And Macro Update”, dated 18th April for details). The interpretation thus far was that RBI was largely sanguine as yet given their H2 CPI forecast. However, the minutes indicate that RBI / MPC weren’t focused on the signaling effect of the CPI forecast. Rather, the focus is more on the list of upside factors to CPI in the context of rising comfort with growth. Given the current global backdrop of further firming oil and commodity prices from when the minutes were presumably written, it is quite likely that Dr. Acharya would officially change his stance from ‘neutral’ to ‘withdrawal of accommodation’ in June. Also, it is unlikely that most of the rest of MPC will have too much of a resistance in adopting this stance. This is assuming that there is no dramatic change in the current global backdrop between now and then.

 

After this, the situation becomes more complex. The first aspect to think about is whether RBI will continue with a neutral liquidity stance once in ‘withdrawal of accommodation’ phase or will it move towards a deficit stance (say 1% of NDTL)? If it is the latter then the current expectations of Open Market Operation (OMO) bond purchases over second half of the year will also need to be revised or abandoned altogether. The second aspect is how soon would the RBI / MPC want to execute the new stance via an actual rate hike? There will be more clarity by August on aspects like the near impact of MSP hikes as well as the monsoons. A lot will depend upon the pace of growth here-on as well. It must be remembered that global data has turned somewhat weaker over Q1. This is currently being considered transitory. However, should it sustain then it would have implications both for our growth as well as for commodity prices. Also, our own local growth drivers have been dented lately with renewed stress on the banking system potentially leading to tighter credit standards. This can also have an effect on our growth momentum. The point is that RBI / MPC’s assessment has been changing quite substantially over short periods of time. To some extent this has to do with the considerable volatility in underlying data and the global macro drop. Thus whatever is being assessed now is certainly not cast in stone. The base case for now, however, is for a change in stance in June followed by the first hike either in August or in October.

 

From an investor standpoint, the minutes show an earlier change in stance than was earlier envisaged. However, there are two key points that need to be remembered: One, the subsequent cycle is expected to be extremely shallow coming as it does at the mature part of the global growth cycle and at a time when local growth drivers are also far from firmly in place. Two, the front end rates in the bond market are already pricing in almost 75 bps of a rate hike over the course of the year.

 

Disclaimer:
 
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
 
The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the stocks may or may not continue to form part of the scheme’s portfolio in future. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

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Suyash Choudhary

Introduction

 

India’s once unassailable macro has taken some hits recently. We have argued before that this should be seen in the whole context; that our inflation and current account had compressed to almost unsustainable levels given the context of a growth economy. Nevertheless, the recent deterioration in our macro comes against rising risks in the global environment. The objective of this note is to point out some noteworthy recent data points from our own macro as well as some of the more notable global factors that bear watching. Source for all charts is CEIC and IDFC MF Research.

 

A List Of Darker Things

 

1. India’s external account: Till a year ago, India’s external account was a source of significant strength. Backed by perceived macro and political stability, it had helped turn INR into a very low beta currency versus the developed market pack. Indeed, most worries around the INR were whether it was getting overvalued and what this would mean for local industrial competitiveness. Thus our so called basic balance (current account plus net Foreign Direct Investment (FDI)) had turned positive thus entirely removing our reliance on so-called ‘hot money’. As is mostly the case in such situations, the hot money nevertheless continued to chase us leading to a problem of plenty for the RBI as reflected in the ballooning spot plus forward foreign exchange book.
 

The reality over the past year is now somewhat different. Our trade account has widened consistently as shown in the chart below.

 

graph1_2617

 

The obvious attribution to this could be on rising crude and metal prices. While these components have no doubt contributed, there has been a significant jump in other classes of items as well including electronic goods and gems and jewellery. Alongside, there has been some slowdown in our net FDI run rate as well which has further contributed to widening of the basic balance. This is shown below.

 
graph1_2617

 

It is to be noted that even with this deterioration, India’s basic balance deficit is likely to be around 1% of GDP. This is quite acceptable as it is. However, the incremental deterioration is significant and comes in an environment where global liquidity is also tightening. In this context, the sharp rise in USD LIBOR especially since February is quite noteworthy.

 

2. A pick up in CPI momentum: There has been a lot of noise with respect to Consumer Price Index (CPI) over the past few months. This has largely been owing to the optical effect of HRA in housing, and dramatic changes in vegetable prices (unseasonal inflation) and pulses (massive deflation). The underlying momentum when stripped of these one-offs has been largely stable over the past few months. However, the most recent CPI print has marked some turn in this momentum, as shown in the graph below.

 

graph1_2617

 

In the graph below, we track CPI ex of food, beverages, fuel, light, petrol, diesel, and housing. This is the so-called core-core-ex housing metric. The upturn in momentum is clearer in this series as shown below.

 

graph1_2617

 

It must be emphasized that this is just one data point. As the series shows, there have been similar upturns in the past as well, but they haven’t been sustained. Only if this upturn in momentum sustains will this start becoming an item of worry, especially given some uncertainties ahead with respect to food inflation under the new Minimum Support Price (MSP) regime.

 
3. A sharp rise in currency in circulation: The data on currency in circulation has got distorted for the longest time owing first to demonetization (which collapsed the y-o-y growth rate) and then remonetization (which led to a manifold y-o-y growth rate). However, as the remonetization process seemed to be maturing, there seemed to be some stabilization over the last quarter of calendar 2017. However, currency in circulation growth has spiked again starting the new calendar year, leading to media noise lately around ATMs going dry. A variety of factors are being mentioned with respect to this rise in currency in circulation including higher avoidance owing to higher tax rates on services, higher food grain procurement, upcoming elections etc. It is difficult to judge the relative importance of these as reasons. But unless proved to be temporary, this phenomenon is a set back to the theme of greater financialization, and should generally be associated with higher cost of money, ceteris paribus. However, there is another perverse logic here that may eventually turn out to be supportive of bonds. If the currency bleed continues at current run rate then, alongside a less sanguine balance of payment outlook, this may turn core liquidity negative at some point later in the year. Thus just as RBI sold bonds last year to absorb core liquidity, it may have to buy bonds this year to infuse liquidity. However, given the starting point of positive core liquidity and a substantial forward dollar book still with RBI, we think this is a theme for later in the year.

 

4. A continuous attempt to readjust bond supply expectations: There was a need for an adjustment to the bond demand – supply balance given the lack of risk appetite locally. This was done with the central government’s borrowing calendar. While the solution was less than optimal given that it raises second half uncertainties, it was probably the best possible given the constraints. This triggered a meaningful rally, especially in the so-called belly of the curve (10 – 14 year). Aided by a perceived dovish RBI policy, the 10 year briefly pierced the 7.15% mark also. This was unthinkable till only a few days back and frankly seemed a little excessive to us even given the new supply realities. Nevertheless, the announcement of the SDL calendar reversed sentiment quite speedily, given that it was around INR 40,000 crores larger than what market would have expected. Thus as things stand now the state plus centre calendar is heavy enough to negate the positive sentiment effect of the ‘Garg Put’ (please refer “The ‘Garg Put’ And Market Implications”, dated 28th March for details). The total volatility associated with these 2 announcements was worth around 70 – 80 bps (move down in yield and then move back up). This has had the result of killing a lot of new risk appetite in the market. As if this weren’t enough, there is now buzz that a sovereign bond issue is being planned to further reduce supply in the local market. As discussed before, this continuous news flow on bond supply is probably not desirable inasmuch that it prevents market participants on focusing on the underlying macro while making investment decisions. Also this is significantly distorting the shape of the curve, keeping it much flatter than it ordinarily should have been between, say, 4 yr and 30 yr for instance while 0 – 4 yr is extraordinarily steep. If the yield curve were being looked at as a transmitter of RBI policy, then the central bank should have been concerned with such elevated front end rates. This is probably hindering corporates and banks from raising short term money at competitive rates despite RBI not hiking interest rates.

 
5. Global developments: The good thing globally so far is that the dollar remains weak. Thus the INR’s underperformance is starker with respect to peers rather than against the dollar. However, at the same time funding costs are rising globally, as most clearly evidenced in rising LIBOR and widening LIBOR – OIS spreads. Meanwhile, geo-political uncertainties have risen with the US exhibiting a more hawkish foreign policy stance. While trade wars are also thrown into the mix, our chief concern here is the recent renewed strength in oil prices. Thus the USD 70 – 71 per barrel level that had proven to be a top over the past few months, has been breached and prices have sustained here now for some time. There are more geo-political risks around the corner that will bear watching in this context including US review of Iran sanctions waiver by mid-May, and prospects of political risks in Libya.
 

Conclusion
 
The underlying story for India remains largely the same: that of incremental deterioration in some macro parameters, but off a very strong base. RBI itself seems largely sanguine as reflected in their second half CPI forecast, despite a rising list of risk factors. Our intent here has only been to quantify the incremental worsening in macro and to flag evolving developments. It has also been to note developments at a global level that may require heightened vigilance from the central bank.
 

Given this context and the shape of the yield curve, there are 2 strong investor takeaways: 1> The front end of the curve is already building a strong cushion for any potential RBI rate action later in the year. Also, whether this rate action comes will itself depend upon some of the evolving risks mentioned here and by the RBI actually fructifying. The longer the RBI is on status quo, the better the cushion becomes on front end rates, given the already substantial starting carry. 2> There is no strong case for long duration trades, save very tactically to play short term trading ranges; if one has the ability to do so. The 4 to 30 year is too flat given the environment and market risk appetite is too inconsistent to play long duration meaningfully. Needless to say our portfolio strategies are largely anchored around these two takeaways.

 

Disclaimer:

 

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
 

The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the stocks may or may not continue to form part of the scheme’s portfolio in future. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

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Suyash Choudhary

The bond market took the RBI policy gladly and used it to build on the momentum already established since the announcement of the H1 borrowing program. Specifically, the bond market took positively the downward revision to RBI’s CPI forecast for the year ahead, as well as its specific focus on the CPI ex-HRA in the written policy document. Some of the noteworthy specifics, in our view, are as follows:

 
1. CPI forecast for H1 FY 19 has been reduced from 5.1 – 5.6% to 4.7 – 5.1% and for H2 from 4.5 – 4.6% to 4.4% in H2, but with risks tilted to the upside. Excluding impact of HRA revisions, CPI is projected at 4.4 – 4.7% in H1 and 4.4% in H2. It is to be noted that these are very close to the target of 4% and if achieved effectively rule out any rate hike. A prolonged pause is anyway our base case view.
 
2. However, most of the risk factors mentioned are to the upside. Thus the MPC notes the possible impact of MSP revisions that will be known only in the coming months, the risks from possible second round effect of HRA increases, the possibility of near or medium term fiscal slippages from centre and / or states, possible risk from monsoons, risks to inflation from companies expecting higher input and output prices, and crude price volatility. More fundamentally, the MPC also assesses that growth has been recovering and output gap closing as also reflected in a pick-up in credit growth in recent months. The MPC also notes that household inflation expectations have edged up both for 3 months and 1 year horizons.
 
3. The growth outlook is largely sanguine with rising investment activity locally and improving demand globally. GDP is expected to strengthen from 6.6% in 2017 – 18, to 7.4% in 2018 – 19 (H1 range of 7.3 – 7.4% and H2 of 7.3 – 7.6%) with risks evenly balanced.
 

Takeaways and Implications
 

The policy today serves to take away lingering risks of a near term hike, although most of these may have already started to get addressed with the recent sharp fall in CPI. Having said that, while the starting point on CPI for the next financial year is lower, there is still little color on the risks that lie ahead. The MPC has noted as much and, as discussed above, its list of risk factors runs large. Many of these will only begin to get clarified over the next few months and the MPC will have to be alive to how these evolve. However, a long period status quo on policy rates continues to remain our view.

 

From a bond market standpoint, the policy has provided an additional momentum to the recent rally. With this, however, the curve has flattened unsustainably; in our view. Thus spread between 5 and 10 year government bonds is less than 10 bps at the time of writing.

 

We have used this to trim our tactical long positions in the so-called ‘belly’ (10 – 14 years). In our active bond funds we continue to run 10 year proxies like SDL and corporate bonds to some extent. However, for the most part we are very overweight rates up to 5 – 7 years. These stand to benefit the most going forward, in our view, given no immediate fears of rate action and the very flat yield curve. Banks are also likely to prefer this segment given larger reluctance to add duration post recent experience, and especially at lower yields. Pure front end strategies like ultra short, short, medium term also look very attractively poised especially with the latest relief from RBI expectations.

 

Disclaimer:
 
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
 
The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The information/ views / opinions provided is for informative purpose only and may have ceased to be current by the time it may reach the recipient, which should be taken into account before interpreting this document. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision and the stocks may or may not continue to form part of the scheme’s portfolio in future. The decision of the Investment Manager may not always be profitable; as such decisions are based on the prevailing market conditions and the understanding of the Investment Manager. Actual market movements may vary from the anticipated trends. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

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