Review:

In the monetary policy meeting, RBI cut the repo rate by 0.25% to 6.50%, in line with market expectations. Additionally, RBI also made some sweeping changes to the monetary policy operating framework. RBI changed policy rate corridor from +/-100 basis points to +/- 50 basis points in addition to reducing the minimum daily cash balance to be maintained by banks from 95% to 90%. All these measures, along with a narrower corridor, are expected to aid in policy transmission. In its forward guidance, the RBI stated that the stance of monetary policy will remain accommodative.

The Index of Industrial Production (IIP) for the month of January was seen at -1.5% as compared to 0.5% in December 2015. Consumer Price Index (CPI) was seen at 5.18% in February as compared to 5.69% in January. Indian Rupee closed against the dollar at 66.25 as on 31 March 2016.

Outlook :

We have a positive outlook on bond markets. We believe that RBI’s policy measure will help bond market sentiments and bank liquidity position considerably. This should also pave the way for more transmission of the 1.50% in policy rates cuts done so far as banks see their funding costs decline. Hence the impact of the rate cut could well be more. However, we don't think that considerable more monetary easing is ahead. We believe that rates will remain on hold until end-2016, primarily because we do not forecast CPI inflation undershooting 5% on a sustained basis. Instead, the focus will now likely be on greater transmission by ensuring adequate liquidity in the banking system.

Review:

Nifty gained ~11% in the month of March (Q4 FY16: Nifty lost 2.6% and FY16: Nifty lost ~9%). FIIs turned net buyers of domestic equities worth US$ 4.1 bn after being sellers for previous four consecutive months (from November 2015 to February 2016). DII turned net sellers of equities in tune of US$ 2.3 bn for the month. (Q4 FY16: FIIs and DIIs were buyers of equities worth US$ 1.2 bn and US$ 1.1 bn respectively). Nifty gained primarily due to global liquidity driven rally, risk-on sentiments and on expectations of rate cut by RBI. The following sectors outperformed the index: Cement, Metals & Minerals and Technology as against sectors such as Media, Pharmaceuticals/Healthcare and Telecom which underperformed in the index in Q4 FY16.

Outlook:

Short term-Neutral; Long term-Positive

We expect equity market to remain range bound in the near future primarily due to weak corporate earnings, uncertain global economic outlook, supply of paper and slow pace of reforms agenda. Nifty valuations at 16.3x FY17E as compared to long term average of 14.5x. However, we expect equity market to deliver double digit growth driven by similar returns from corporate earnings growth and supported by benign inflation and high GDP growth over the coming years.

The Company recognises that risk is an integral element of investment management and managed acceptance of risk is essential for the generation of value. The Company’s acceptance of risk is dependent on the return on risk-adjusted capital and consistency with its strategic objectives. The Company will endeavor to reduce risks to the extent it is optimal to do so. In general therefore, the Company’s control procedures and systems are designed to manage risk, rather than eliminate it.

To manage the risk effectively, the Company has a three tiered investment structure with varying levels of decision making, which comprises the Board Investment Committee, Executive Investment Committee and the Investment team.

The Board Investment Committee recommends and reviews investment policy and changes thereto, reviews investments and oversees the risk management framework for the investments. The Executive Investment Committee is responsible for building investment strategy, monitoring investment decisions and returns, providing support on regulatory and tax issues and it also approves delegation of authority to the Dealers. The Investment team is responsible for market tracking, investment decisions, investment compliance, monitoring and reporting of risk.

The Company has strong governance framework encompassing segregation of duties and adequate firewalling between Investment and other roles. The Company has code of conduct to prevent insider trading. System used for investment management is seamlessly integrated within and with its peripheral systems with adequate system as well as manual controls. The activities and systems of the Investment team are subject to concurrent audit.

The Company uses advanced risk identification, measurement and management tools to ensure that risk exposure is within the Board approved risk policy.