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Sbi Corporate Bond Fund
Sbi Corporate Bond Fund
Low risk
SBI Corporate Bond Fund
Disclaimer: Investors should consult their financial advisors if in doubt whether this product
is suitable for them.
Product Snapshot
* Corporate Debt securities will include Debenture and Bonds issued by Corporate (private institutions across sectors including NBFC’s, banks and other financial
institutions), PSU's, Securitized Debt#, and International Bonds. # Investment in securitized debt will be to the extent of 40% of the net assets of the scheme
Exposure to derivatives instruments in the scheme will be to the extent of 50% of the net assets of the scheme. The cumulative gross exposure through Debt &
Money market instruments and derivative positions will not exceed 100% of the net assets of the scheme. However, trading in derivatives by the scheme shall be
restricted to hedging and portfolio balancing purposes as permitted by the regulations.
SBI Corporate Bond Fund Performance
16
14
12 SBI Corporate Bond Fund - Reg -
10 Growth
8
6 Scheme Benchmark: - Crisil
Composite Bond Fund Index
4
2
Additional Benchmark: - Crisil 10 Yr
0 Gilt Index
30-Sep-2015 to 30-Sep- 30-Sep-2014 to 30-Sep- Since Inception
2016 2015
Past performance may or may not be sustained in future. Returns (in %) other than since inception are absolute,
calculated for growth option of regular plan and in INR are point-to-point (PTP) returns calculated on a standard investment of
10,000/-. Additional benchmark as prescribed by SEBI for long-term debt schemes is used for comparison purposes.
The segment
currently looks Attractive absolute
NCD
attractive on account yield levels provide
of fat spreads, an opportunity from
comfortable interest a long term
ZCB perspective.
rate position and
liquidity outlook.
CBLO/Rev This portion of the This portion of the
79.54 erse Repo portfolio seeks to portfolio seeks to
generate higher provide stable
NCA returns by way of returns.
credit selection.
The fund manager will not engage in active duration management but will try to generate alpha by capturing
spread over AAA securities.
Spread 3 Yr Average
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Spreads between AA & AAA 3 year corporate bonds are above the 2 year period average
There has been a subtle shift in the direction of global bond yields over
the last month with markets doubting the incremental effectiveness of
additional QE/Monetary easing measures on aggregate demand.
With the election results in the US, there has been a further rise in
treasury yields, increase in long term market implied inflation
expectations and curve steepening.
9.50
The recent demonetisation of high value notes can have major medium-
long term positive structural effects such as: a) potential additional 9.00
government tax revenues from better compliance over the coming 8.50
years, b) increase in tax/GDP ratios seen in conjunction with GST and
c) reducing the role of cash economy and additional access to formal 8.00
financial sector. 7.50
Also potential short term gains arising from a) possible one-time gains
7.00 Average spread between G-sec
to government from FY18 arising from cancellation of illegal high value
and Repo in last 10 years: 75bps
notes which may impact next year borrowings, b) slowdown in 6.50
discretionary consumption and its cumulative impact on demand and
6.00
inflation and, c) improvement in banking liquidity as currency partially
Jun-11
Apr-12
Nov-11
Dec-13
May-14
Oct-14
Mar-15
Aug-15
Jan-11
Jan-16
Jun-16
Sep-12
Feb-13
Jul-13
returns to the system.
Weak near term credit demand can support bonds, until the working
capital demand shifts to banking channels from the cash based 10 year GSec yield (mth end, %) Repo Rate (mth end, %)
channel.
While fiscal situation can improve significantly over medium term, the
market can also take comfort from near term weakness in headline CPI.
In this environment, the trend for a medium term easing in market yields
remains intact driven by incremental news flow on potential benefits to
government revenues over the medium term.
In the very short term, global yield volatility , shifting expectations of US
Fed stance and lack of OMO’s /higher net supply can provide 2 way
movement in bond yields.
Source: RBI, Bloomberg, SBIFM Research
Investment Strategy
The fund aims to provide investors with yield spreads on corporate debt securities by
cautiously managing the excess risk on its corporate investments. The fund will follow an
active credit quality management strategy.
The scheme being open ended, some portion of the portfolio will be invested in money
market instruments so as to meet the normal repurchase requirements. The remaining
investments will be made in corporate debt securities which are either expected to be
reasonably liquid or of varying maturities. However, the NAV of the Scheme may be impacted
if the securities invested in are rendered illiquid after investment.
In line with the scheme objective we have deployed funds in 2 – 3 year corporate bonds with
the primary focus on accrual. The portfolio average maturity is 3.23 years and the current
weighted average portfolio yield is 8.67%.
Tactical exposure towards long AAA rated corporate bonds has been initiated with a positive
bias on interest rates.
Credit Evaluation Mechanism
Credit Evaluation Philosophy
Independent
Independent in-house research
Fundamental Approach
Judgemental Approach combined with analysis of financial ratios
Monitoring
Close monitoring of credits under coverage through periodic updates
and analysis.
Bottom Up Approach
Credit Selection, Security Allocation, Spread Dynamics, Sector Allocation
Credit Evaluation Approach
Industry Analysis
Structure, Demand &
Supply, Industry Cycles,
Entry Barriers, and
Outlook
Macro
Fundamentals Company’s Business
Monetary & Fiscal Policies, Fundamentals
Regulations ,
Competition, Business
Model, Inherent Strengths
& Weaknesses
Risk Management
Internal reviews and Financial Analysis
performance matrices to
manage Exposure Limits , Financial Statements, Ratios,
Risks such as Credit, Liquidity, Capital Structure, Leverage,
Interest Rate etc. Working Capital Management,
Bank Credit Lines , Liabilities,
Asset Quality & Maturity and Risk
Management Management
Promoter Background & Track
Record, Performance of Group
Companies, Internal Controls,
and Succession Plans
Case Study: A Leading Hotel Company
Background: Jointly promoted by a renowned Indian corporate and a prominent Indian business
family.
Investment Thesis:
• The company has an experience of over 40 years and operates a portfolio of nine hotels in
multiple states in India.
• The company’s financial performance is expected to improve owing to increasing occupancy
as well as average room rates in key markets
Investment Rationale:
• Market outlook for key properties is stable to positive.
• Planned capital expenditure for the company is largely over with over 25% of inventory
added in previous three years and only maintenance expenditure planned in near term.
• Comfort from the common branding, operations, finance and treasury support extended by a
large hotel brand for the Company.
Case Study: A Leading Infra Company
Background:
• The company has a Build, Operate and Transfer (BOT) portfolio of 21 road projects
encompassing 5,000 lane km and spread across various states in India.
Investment Thesis:
• 15 out of its portfolio of 21 projects are fully operational.
• The company houses its road projects under two broad holding companies out of which one
was carved out with eight projects in its portfolio to enable a strategic stake sale to a fund
sponsored by a PSU Bank.
• The PSU Bank Sponsored Fund holds around 35% in the said company.
Investment Rationale:
• Key credit strengths are established track record in executing EPC contracts and BOT road
projects
• Moderate financial leverage and working capital requirements and equity investment of Rs.
700 crore by the PSU Bank Sponsored Fund brings the holding company into the league of big
BOT players being the exclusive platform for the Bank to bid for newer projects.
Synopsis
Declining inflation trajectory and the consistent rate cut by RBI. Its
better to capitalise on the high corporate bond yields now.
About Us
Strong Indian Presence ; Extended International Reach
India’s premier and largest bank with over Global leader in asset management
200 years experience (Estd: 1806)
Backed by Credit Agricole and Société Générale
Asset base of USD 399 bn*
More than 2,000 institutional clients and distributors in
Pan-India network of ~22,635 branches and
30 countries
~ 50,000 ATM’s as at end of June 2014
Over 100 million retail clients via its partner networks
Servicing over 256 million customers
€ 866 bn AuM as at end of December 2014
Only Indian bank in Fortune 500 list; ranked
among the top 100 banks in the world Ranking N° 1 in Europe, Top 10 worldwide #
63% 37%
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Why SBIFM : Our Value Proposition
Proven expertise in
27 years of experience in asset managing strategies across
management with a strong asset classes
Structured and disciplined
parentage Strong six member
processes to ensure effective
In-depth understanding of independent team
execution of strategies
Leverage on strengths of both businesses and strong
stakeholders to achieve linkages with company Risk management aligned
Rigorous investment templates
qualitatively superior business managements and sell side to international standards
in place for each strategy
analysts
Extensive Distribution network Emphasis on coherence in
Flexibility to tailor solutions and
and Strong Relationships with Strong in-house research risk monitoring
advisory assignments
domestic and international provides depth and breadth
investors of coverage resulting in
superior security selection
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Investments Team
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This presentation is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund
units/securities. These views alone are not sufficient and should not be used for the development or
implementation of an investment strategy. It should not be construed as investment advice to any party. All
opinions and estimates included here constitute our view as of this date and are subject to change without notice.
Neither SBI Funds Management Private Limited, nor any person connected with it, accepts any liability arising from
the use of this information. The recipient of this material should rely on their investigations and take their own
professional advice
Website www.sbimf.com