• Debt Market Outlook 2014, Reliance Regular Savings Fund – Debt Plan, Growth option

• Mr. Prashant started the discussion by saying that we have the Interest rate Policy coming next week.
• Mr. Prashant stated that a lot has happened in the past 2-3 months in India and outside.
• Oil has come down significantly. We have an OPEC meeting on Nov 27^th 2014, and so Crude might go up in the short term if they cut output.
• We don’t expect Crude to fall to USD 50-60 levels. We think its range should be USD 70-90.
• Crude price fall has also impacted our local Oil prices and the subsidy on Diesel has also been done away with. In CPI also Crude has 10% weightage.
• Lower Minimum Support Price and lower wages will support low inflation.
• All these factors should contribute to keeping CPI around 6%.
• In GDP, Fiscal Deficit and CAD: Fiscal Deficit is the outcome of what kind of subsidies we are paying. Next year we expect the Food and Fertiliser subsidies to be targeted.
• GDP appears to have bottomed out.
• CAD is dependent on how INR moves. Should be around 2.5%.
• Therefore, most macroeconomic factors are quite in favour of low yields.
• Secondly, a lot of FII money has come in.
• India has less flows as a %age of XYZ . Only 4% as compared to 30% eg. in Malaysia.
• Lastly, RBI has been contemplating US rate hikes. We believe India will not be impacted so much, because the quality of investors is good.
• If US continues to hike rates, then Europe and others will buy their securities and yields will drop. Doesn’t look like US can continue to hike rates.
• Secondly, US-India differential has been historically 600 bps. But it has also seen a low at 200 bps in the past. Dependent upon inflation data.

So, India can reduce rates, and US can increase rates and Bps gap can reduce for some time.

• We have a majority party now so good reforms are expected. Environment not like UPA II. 
• Returns on Dynamic Bond Fund: 8-9% since March, due to changes in Duration. Over a 3 year period, returns have been very good.
• Over longer periods of time, Duration management pays off, although in a shorter period it could be volatile.
• Relative to FDs, it is a strong case, this Fund. It has low volatility. Past year’s returns have been 9.5%, greater than FD and Post Office schemes.

Question Answer Session

Q1 Iqbal Singh: RRSF Debt: Mod. Duration 6.78 and YTM is 8.81. Your opinion on which side we should take the call ? Further Nil exit load on Reliance income fund relative to RRSF. What was the criteria ?

A: Mr. Prashant: Reliance Income fund has no exit load because it is playing on duration and good exposure to Gsec. RRSF debt portfolio is illiquid and playing on accrued income with credit spread.(YTM-10.55%) Its papers are not sold so easily. Hence lock in is there.

Q2 Iqbal Singh: What is the rationale behind Edison Utility Works, or Pune Infoport etc., which are large percentages of your portfolio but not big names and not rated ?

A: Mr. Prashant: Edison is an exposure to the Zee group. Pune Infoport is an exposure to Blackstone (Express Towers at Nariman Point).

Underlying assets are very strong even if names are not known. Loans against shares. Locked in at 13-13.5%. Our average rating is AA. We have flexibility to go upto A.

Café Coffee Day is a lending to its owner. Similarly lent to Mindtree.

Purely Loans against Shares (LAS)  operations. Have not done anything in which the cover is less than 2.

Q Iqbal Singh: Out of Dynamic Bond Fund and Income Fund how should we allocate ?

A Mr. Prashant: Keep 60% in Dynamic Bond Fund and 40% in Income Fund

Q Iqbal Singh: Dynamic Bond Fund started on Nov 15, 2004, since Inception IRR 6.7% ?

A Prashant: It was earlier started as NRI fund and got merged to dynamic bond fund in 2009.