DEBT OUTLOOK & UTI FUND VIEW

A little over a year ago, RBI began cutting rates and then went up into a pause as it saw the risk emanating from a high inflation , political uncertainty in spite of a slowing economy. while these risks began gradually getting addressed, the RBI in its its bid  to help kick start growth renewed the rate cutting cycle in January 2013 . 

Going forward, food inflation is expected to ease further with the winter crop hitting the markets and expectations  of a normal monsoon. Declining global commodity and crude prices have helped bring down imported inflation significantly  and currently there are no signs  of the commodity cycle upturn. Slowdown in major emerging markets, including the BRIC nations, will keep the commodity demand soft. For FY14, RBI projects inflation to be at an average of 5.5%. The market in the near term is expecting a rate cut of 25 bps rate cut in the June policy and potentially a cash reserve ration cut as well given the liquidity  in the system is outside the comfort zone of RBI. During the week ended May 24 , 2013 , banks have borrowed an average amount of Rs. 96,000 Crs from the RBI under the daily LAF repo auctions. We feel that RBI would take some action towards addressing that liquidity deficit, more likely by way of open market operations especially as the advance tax period is a fortnight away. View on UTI Fixed Income Products With expectations of further rate cuts and the current macroeconomic environment, duration funds are expected to outperform other fixed income categories. We continue to suggest a mix of short term and long term funds over medium term investment horizon , with a higher weightage  to the short term funds given the volatility expected in the next few months. In Ultra short term category , we continue to recommend funds like UTI Floating Rate Fund to our investors for an investment horizon of at least 1 month and preferably more than 3 months. Short term income funds like the UTI STIF  and UTI Dynamic Bond Fund looks attractive on a time horizon of 6-9 months, whereas a long term duration fund like UTI Bond Fund can be considered for investing for a time horizon of 12 months or above . Investors looking to invest with a time horizon of above 18 months could look at funds like UTI Credit Opportunities  Fund which in addition to higher accrual would also benefit from credit play, UTI DYNAMIC BOND FUND : The fund will continue to actively manage G-Secs, and would generally aim to maintain average maturity in the range of 3 to 5 years in the near term. UTI BOND FUND : It can take exposure in 2-10 year maturity corporate bond papers as well as G Secs. On an average the fund aims to take 25% to 45 % in G Sec, in the near term keeping in view the current macroeconomic  environment. The G Sec exposure would be actively managed to take advantage of opportunities presented by the market.  UTI CREDIT OPPORTUNITIES FUND:  It attempts to provide reasonable income by investing in high income accruing securities and capital appreciation through  active portfolio management to gain on change in credit / interest rate spreads.  It is suitable for investors who have medium risk appetite and with an investment horizon of more than 18 months and in the process keep money in fixed deposits with banks and private companies. The fund currently has a diversified portfolio with nearly 80%  of the portfolio invested in modest credit quality ( AA Category and above ) to provide stability to the fund.