SBI Corporate Bond Fund This product is suitable for investors who - PowerPoint PPT Presentation

SBI Corporate Bond Fund

This product is suitable for investors who are seeking:  Investment in debt and money- market securities  Regular income for medium term  Moderate risk SBI Corporate Bond Fund Disclaimer: Investors should consult their financial advisors if in doubt whether this product is suitable for them.

Product Snapshot • To actively manage a portfolio of good quality corporate debt Investment as well as Money Market Instruments so as to provide Objective reasonable returns to the Unit holders Investment • Investors having a reasonable risk appetite and an investment horizon of minimum 2 years. Suitability • Corporate Debt Securities* (incl. securitized debt#): • Indicative Allocation - Minimum 80% & Maximum 100% Asset • Risk Profile – Medium • Money Market Instruments: Allocation • Indicative Allocation - Maximum 20% • Risk Profile – Low to Medium * 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 14.0 12.0 SBI Corporate Bond Fund - Reg - Growth 10.0 8.0 Scheme Benchmark: - Crisil Composite 6.0 Bond Fund Index 4.0 Additional Benchmark: - Crisil 10 Yr Gilt 2.0 Index 0.0 31-Mar-2016 to 31-Mar-2015 to 31-Mar-2014 to Since Inception 31-Mar-2017 31-Mar-2016 31-Mar-2015 Since Inception 31-Mar-2016 to 31-Mar-2015 to 31-Mar-2014 to 31-Mar-2017 31-Mar-2016 31-Mar-2015 CAGR Returns PTP Returns Absolute Returns (%) (%) (INR) SBI Corporate Bond Fund 9.97 9.28 N.A. 10.25 13,024 Crisil Composite Bond Fund Index 11.09 8.24 N.A. 10.94 13,245 Crisil 10 Yr Gilt Index 11.87 7.97 N.A. 11.54 13,440 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. Data as on March 31, 2017

Current Portfolio Structure ₌ ₊ AA+ & Above Portfolio Below AA+ This portion of the The allocation to the CBLO/Rev funds is primarily long bonds to erse Repo, invested with maintain duration 0.98 ZCB, 10.17 maturities ranging within a constant NCA, 3.03 from 1 to 5 years range CP, 1.37 The segment Attractive absolute currently looks NCD, yield levels provide attractive on account 84.45 an opportunity from of fat spreads, a long term comfortable interest perspective . rate position and liquidity outlook. NCA(Incl. Cash,Depo This portion of the This portion of the sits and portfolio seeks to portfolio seeks to SOV,AAA Equity), generate higher and provide stable 4.01 returns by way of Equivalent, returns . 30.43 credit selection . Below AA+, 57.85 Current Exposure : Current Exposure : 42.15%* 57.85%* AA+, 7.71 The fund manager will not engage in active duration management but will try to generate alpha by capturing spread over AAA securities. *As on April 30, 2017

Current Portfolio Quality Credit Quality Interest Rate Sensitivity Top 10 Holdings High Medium Low Issuer Name % of AUM High POWER FINANCE CORPORATION LTD 7.66 ADITYA BIRLA RETAIL LTD. 7.29 Medium RURAL ELECTRIFICATION CORP LTD 6.11 Low STERLITE POWER GRID VENTURES LTD. 5.66 NATIONAL HIGHWAYS AUTHORITY OF INDIA 4.94 8.0% 7.0% AU SMALL FINANCE BANK LIMITED 4.44 6.0% 5.0% TATA REALTY INFRASTRUCTURE LTD. 3.66 4.0% 3.0% VADODARA BHARUCH TOLLWAY LTD 3.65 2.0% 1.0% RELIANCE HOME FINANCE LTD 3.56 0.0% LIC HOUSING FINANCE LTD 3.55 1 week 30 days 45 days 90 days Total 50.52% Duration Bucket % Data as on: April 30, 2017

Why More AA Rated Bonds in the Portfolio 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Spread 3 Yr Average Spreads between AA & AAA 3 year corporate bonds are above the 3 year period average Source: Bloomberg as on April 30, 2017

Debt Market Outlook  Indian bond yields rose dramatically in February as RBI changed its monetary policy stance from accommodative to neutral and has continued to stay elevated there since.  As of April end, 10 year G-sec yield stands at 6.87%, up 45bps from 6.41% in March. Massive foreign inflow during March and April (due to attractive valuations) also led to the increased 10.00 demand for Indian G-sec and consequent fall in yields. 9.00  Going forward, as US Fed is expected to hike rates and Indian 8.00 inflation is expected to inch up, this attractiveness will likely reduce. 7.00 6.00  Further, with surplus liquidity, no RBI OMO purchases and neutral 5.00 policy stance, the yield curve would remain steeper in the coming months. 4.00 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17  For FY18 as a whole, supply-demand dynamics of the government bonds, liquidity situation of the banks once the pace 10 year GSec yield (mth end, %) Repo Rate (mth end, %) of currency withdrawal normalized, bank credit outlook and, global outlook will take prominence in guiding the bond markets trajectory.  We remain constructive, but with a slightly longer term approach as average CPI settle lower and government’s measures to widen the tax base leads to structural improvement in the fiscal balance. Accordingly, we keep taking tactical calls in duration at the opportune time (like last two months) . Source: 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 2.79 years and the current weighted average portfolio yield is 8.47%.  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 Intensive Due Diligence Channel Checks, Interaction with Company Management & Rating Agencies, Competitor Analysis 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 Fundamentals Monetary & Fiscal Policies, Regulations , Competition, Business Model, Inherent Strengths & Weaknesses Risk Management Internal reviews and Financial Analysis performance matrices to Financial Statements, Ratios, manage Exposure Limits , Capital Structure, Leverage, Risks such as Credit, Liquidity, Working Capital Management, Interest Rate etc. 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.