GATHERING SPEED:

Update on the Monetary Policy

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) voted unanimously
to hike the repo rate by 50 bps to 4.90%. Consequently, the standing deposit facility
(SDF) rate stands adjusted to 4.65% from 4.15% and the marginal standing facility (MSF)
rate to 5.15% from 4.65%. The MPC maintained its “withdrawal of accommodation”
stance while dropping the phrase “staying accommodative”, signaling a shift towards
“neutrality”. The Governor reiterated that further monetary measures will be needed
suggesting further rate actions to move towards a positive real rate in near term. The
governor also avoided committing on his liquidity stance going forward stating that
participants have option of “repo” window in case liquidity becomes negative.
 The rate decision was broadly in continuation of “priority shift” since April 2022
policy & was in line with consensus market expectations of frontloaded
normalisation of policy rates closer to pre-pandemic levels by August 2022. With
the 90bps rate headline hike & an effective rate hike of 130bps since March 2022
(change in overnight rate from 3.35% in March to SDF rate of 4.65%), RBI has
joined the group of 15 major central banks who have hiked their policy rates by
50bps & beyond since April 2022 as inflationary pressures ratchet up.

The MPC had highlighted five major risks in its April resolution to the baseline
inflation and growth trajectory:
(i) The ratcheting up of geopolitical tensions;
(ii) Generalised hardening of global commodity prices;
(iii) The likelihood of prolonged supply chain disruptions;
(iv) Dislocations in trade and capital flows; and
(v) Divergent monetary policy responses and associated volatility

Although it was expected that these risks will play out over time, most of these risks
have broadly materialised. While recognizing drivers of inflation as largely exogenous,
there seems to be a widespread consensus amongst MPC that persistent elevated
inflation can potentially de-anchor inflation expectations & hence it wants to pre-
emptively control the spill-over effects and protect the credibility of its price stability
mandate.

Below are the key RBI’s estimates on evolution of growth/inflation trajectory into the next
year compared to their previous forecasts:

CPI(%) Real GDP (%)

10-Feb-22 08-Apr-22 08-Jun-22 10-Feb-22 08-Apr-22 08-Jun-22

Q3FY22

Q4FY22 5.7

Q1FY23 4.9 6.3 7.5 17.2 16.2 16.2

Q2FY23 5.0 5.0 7.4 7.0 6.2 6.2

Q3FY23 4.0 5.4 6.2 4.3 4.1 4.1

Q4FY23 4.2 5.1 5.8 4.5 4.0 4.0

FY23 (average) 4.5 5.7 6.7 7.8 7.2 7.2

Source: RBI Policy Document

02
As can be seen in the table above, the RBI started this year expecting inflation to
slow to 4.5%. As we had noted in our Dec’21 fixed income outlook
(https://www.utimf.com/articles/outlook-on-fixed-income-2022), the RBI’s benign
view on inflation was predicated on low food inflation, which was at risk given the
global stockpiling of food reserves & dry weather. The geo-political tensions in
Europe further exacerbated the pressures on an already stressed supply chains
forcing the RBI to raise its forecast to 5.7% in March. Even though the MPC hiked
repo in May, the panel left the outlook untouched since it was an off-cycle
meeting. RBI has further updated its inflation forecasts today considering the
elevated commodity prices; revisions in electricity tariffs, high domestic animal
feed costs; continuing supply chain bottlenecks & rising pass-through of input
costs. Crude prices have been assumed at $105 which could impart upside risks
to these estimates. Given that the RBI has not considered any impact on growth
of its monetary policy actions, it has also given benefit of doubt to the inflation
forecasts.
While the RBI didn’t hike CRR, further actions on liquidity can’t be ruled out given
that the RBI took comfort from moderation in headline liquidity which may reverse
on government spending/seasonal flows.

OUTLOOK:
The bullwhip effect & normalisation of supply chains eventually leading to manufacturing
disinflation: - one of the key expectations of major central banks last year has started to
show very initial signs in some of the advanced economies most notably in the US.
Concerns have begun to emerge that aggressive policy tightening, geo-political tensions
& extremely aggressive Covid control measures by some countries could lead to a
prolonged stagflation & possible unwinding of the tightening in 2023-2024 by various
central banks. However, as we move from “unprecedented” to “unchartered” territories,
it might not be very prudent to form extremely long-term hypothesis as we assess whether
central banks remain committed to managing inflation expectations at the cost of
growth or let go of their inflation targeting mandates in case of a meaningful growth
slowdown.
We believe that the RBI had decisively shifted towards achieving its inflation target of 4%
in the April 2022 policy. Given the glide path towards 4% could be unwieldly due to the
supply side shocks, it would require MPC to front load its policy actions & maintain a
positive real rate for an extended period of time to establish a “sense of credibility”. Given
the unusually uncertain environment, the RBI has understandably refrained from
committing to a terminal rate for now. Market participants will be keenly looking at the RBI
at the upcoming policies to assess direction on terminal rate which we believe could be
the next big trigger apart from evolution of inflation.
Our base case is of a terminal repo rate between 6%-6.5% in the next 12-15 months which
we believe is largely priced in the short to medium part of the curve (2-5 year) although
near term actions such as change in borrowing mix, possible RBI interventions (Operation
twists) & global cues could impart intermittent volatility in the near term. The yield curve
which had been considerably steep in the last 2 years has largely flattened on
expectations of policy normalisation. However, the expected heavy centre/state bond
supply could weigh on the long end of the yield curve (10 year & beyond) in the near
term. The envisaged terminal rate, however, might not materialize incase of a sharp
slowdown of the global economy due to aggressive rate actions by the US Federal
03
Reserve or easing of geo-political tensions in Europe.
 Information Classification: UTI AMC - Confidential
Given the meaningful correction in the last 2 months across the curve, investors with more
than 3 year investment horizon can contemplate staggered allocation towards roll down
strategies & actively managed duration categories. Investors looking at short term
allocations can consider overnight/liquid/money market funds as we navigate near term
uncertainty & await RBI’s stance on liquidity/terminal rates in upcoming policies.

Average Yield to Maturity

Fund Name Macaulay Duration Modified Duration
Maturity (YTM)
UTI Liquid Cash Plan 34 days -- 0.09 Yrs 4.70%
UTI Money Market Fund 140 days -- 0.38 Yrs 5.54%
UTI Ultra Short Term Fund 137 days 136 days 0.36 Yrs 5.68%
UTI Treasury Advantage Fund 201days 0.57 Yrs 0.55 Yrs 5.72%
UTI Floater Fund 1.14 Yrs 0.69 Yrs 0.66 Yrs 5.71%
UTI Corporate Bond Fund 1.47 Yrs 1.37 Yrs 1.30 Yrs 6.09%
UTI Short Term Income Fund 1.78 Yrs 1.15 Yrs 1.08 Yrs 6.14%
UTI Banking & PSU Debt Fund 3.71 Yrs 3.19 Yrs 2.99 Yrs 6.95%
Data as on May 31, 2022

Product Labelling and Riskometer:

Fund Name and Type of Scheme This product is suitable for investors who are seeking:* Riskometer#
UTI Liquid Cash Plan (UTI LCP) • Steady and reasonable income over short-term with capital
An open ended liquid scheme. A Relatively Low preservation
Interest Rate Risk and Moderate Credit Risk • Investment in money market securities & high quality debt
UTI Treasury Advantage Fund (UTI TAF)
An open ended low duration debt scheme investing
in instruments such that the Macaulay duration of • Reasonable income consistent with high liquidity over short term
the portfolio is between 6 months and 12 months. A Investment in Debt & Money Market instruments
Moderate Interest Rate Risk and Moderate Credit
Risk
UTI Floater Fund (UTI Floater) • To generate reasonable returns
An open ended debt scheme predominantly • To invest predominantly in floating rate instruments (including fixed rate
investing in floating rate instruments. A Relatively instruments converted to floating rate exposures using swaps/
High Interest Rate Risk and Moderate Credit Risk derivatives)
UTI Short Term Income Fund (UTI STIF)
An open ended Short Term Debt Scheme investing • Reasonable income with low risk and high level of liquidity over short-
in instruments such that the Macaulay duration of term
portfolio is between 1 year and 3 years. A Relatively • Investment in Debt & Money Market instruments
High interest rate risk and moderate Credit Risk
UTI Corporate Bond Fund (UTI CBF)
An open ended debt scheme predominantly
• Optimal returns over the medium to long term
investing in AA+ and above rated corporate bonds.
• To invest predominantly in AA+ and above rated corporate debt
A Relatively High Interest Rate Risk and Relatively
Low Credit Risk
UTI Money Market Fund (UTI MMF)
An open ended debt scheme investing in money • Reasonable income with high level of liquidity over short-term
market instruments. A Relatively Low Interest Rate • Investment in money market securities
Risk and Moderate Credit Risk
UTI Ultra Short Term Fund (UTI UST)
An open ended ultra-short term debt scheme
• Reasonable income with low risk and high level of liquidity over short-
investing in instruments such that the Macaulay
term
duration of the portfolio is between 3 months and 6
• Investment in Debt & Money Market instrument
months. A Moderate Interest Rate Risk and
Moderate Credit Risk
UTI Banking & PSU Debt Fund (UTI BPSU)
• Reasonable income, with low risk and high level of liquidity over short
An open ended debt scheme predominantly
to medium term
investing in debt instruments issued by Banks,
• Investment predominantly in Debt & Money Market Securities issued
Public Sector Undertakings, Public Financial
by Bank, Public Sector Undertaking (PSUs), Public Financial Institutions
Institutions and Municipal Bonds. A Relatively High
(PFIs) and Municipal Bonds
Interest Rate Risk and Moderate Credit Risk

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
#Risk-o-meter for the fund is based on the portfolio ending May 31, 2022. The Risk-o-meter of the fund/s is/are evaluated on monthly
basis and any changes to Risk-o-meter are disclosed vide addendum on monthly basis, to view the latest addendum on Risk-o- 04
meter, please visit addenda section on https://utimf.com/forms-and-downloads
Information Classification: UTI AMC - Confidential
 PotentialRiskClassMatrix:

Potential Risk Class

Credit Risk →
Relatively Low Moderate Relatively High
Interest Rate Risk ↓ (Class A) (Class B) (Class C)

Relatively Low UTI LCP

(Class I) UTI MMF
Moderate UTI UST
(Class II) UTI TAF
UTI STIF
Relatively Low
UTI CBF UTI Floater
(Class III)
UTI BPSU

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation
to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of
likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any
illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or
investment strategies referred to on this document and should understand that statements regarding future prospects may not be realized.
The recipient of this material is solely responsible for any action taken based on this material. Opinions, projections and estimates are
subject to change without notice. UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or
tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any
loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document,
howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault,
mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part
thereof or any contents or associated services. Please refer Scheme Information Document for scheme details. The portfolio of the scheme is
subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern,
strategy and risk factors. In preparation of the material contained in this document, UTI AMC has used information that is publicly available,
including information developed in-house. Some of the material used in the document may have been obtained from members/persons other
than UTI AMC and/or its affiliates and which may have been made available to UTI AMC and/or to its affiliates. Information gathered and
material used in this document is believed to be from reliable sources. UTI AMC, however, does not warrant the accuracy, reasonableness
and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain
words, or phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward
looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties
associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in
India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India,
inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc.

05

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.