Product Update – July’20

1

Index

1. Economic Round Up

2. Market Outlook

3. Baroda Dynamic Equity Fund

4. Disclaimer

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Sovereign Rating: Region and India: Not time to worry about downgrades

India’s Sovereign Rating

The upcycle in India was not broad based post GFC, to be under pressure for next 12-18 mths

Source : Maybank Kim Eng Securities Ltd.

Data as on March’20

3

Indian Equities- under performed to most of EMs and DMs

Source: Bloomberg 4

Indices & Sector Performance, Trend in FIIs & DIIs Investment

Source: SEBI & Bloomberg

DIIs= Insurance + MFs

5

Sectoral Kaleidoscope : Pre-Covid 19 and potentially post Covid 19

SECTORS WHICH ……

Were impacted earlier and

may continue to be so

Are impacted now and

may slow down

Are impacted now but

may revive fast

CVs Consumer durables Agri economy

NBFCs Air Travel Cement& Steel

Credit growth Tourism

Online Platforms-Distribution,

payment gateways,

entertainment

Discretionary spends Capex Insurance

Weak Capitalized FI Electricity

Consumer Staples

GST CollectionMade in India-Electronics

Direct Tax collections

Personal Mobility-PV & 2W

2nd Hand Vehicles

Healthcare

Telecom

Pharma

Chemicals

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Nifty EPS cuts sharply, another flat year expected in FY21

COVID halts Earning recovery:: 4QFY20 Nifty PAT to decline by 20% YoY

FY20 EPS – Estimate revised downward by 11% FY 21 EPS – Estimate revised downward by 30%

FY20 earnings cut sharply by 16% in Q4. FY21 flat earnings will be good

Source : MOSL7

Equity Market Outlook

• Global headwinds

– Covid-19 pandemic continues to worsen: delay in vaccine to have bigger impact,

– Lower oil prices,

– Financial Shock

– Global recession

• India

– Equity Markets: sharp correction in line with earnings cut for FY21.

– Lockdown to take a toll on demand and hence impact P&L and BS of Corporate Inc.

• Earnings: Equity Markets are focusing on FY22 earnings with FY21 assumed to be at best a flat earnings.

• Flows: India has seen FII outflows of USD 5.5 bn and DII inflow of USD 11.4 bn YTD.

• Valuations: Nifty as on June’20 is trading @ 10,302 level at 20.5x one year forward PE vs historical one

year forward PE of 17.6x

• Factors to watch out :

– Fiscal and Monetary response

– Global market developments

– spread and duration of the virus

– Corporate response to new normal

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Baroda Dynamic Equity Fund(An open ended dynamic asset allocation fund)

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Baroda Dynamic Equity Fund

• An open-ended dynamic asset allocation fund which invests in equity & equity related instruments with the

primary aim to generate capital appreciation & secondary objective to generate income through investments

in debt and money market instruments. It also aims to manage risk through active asset allocation.

• The Proprietary Model uses 10 year back tested data to evaluate the asset allocation. The model comprises

of multi parameters in order to arrive at the equity allocation

• The portfolio is constructed based on top down as well as

bottom up approach using GARP philosophy (Growth At

Reasonable Price)

• Capitalizing on the Pricing anomalies through Arbitrage

Strategies & Derivatives

• Exposure to high Quality Fixed Income instruments to

maintain liquidity

• Gross equity exposure will be maintained between 65% to

100% and the net long equity exposure will be between 30%

to 100%.

• Derivatives include Arbitrage allocation ; Investment in units

issued by REITs and InvITs upto 10%. Investment in

securitized debt will not exceed 10%

Proprietary Model

Net Equity Allocation

(30% -100%)

Debt Allocation (0% -35%)

Arbitrage Allocation (0% -50%)

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Benefits of Investing through Dynamic Equity

⚫ Eliminates market timing

⚫ Thrifty investing style

⚫ Elimination of Human bias during investing

⚫ Multi-Parameters strategy used for deciding the equity allocation

⚫ Reduced risk through Dynamic Asset Allocation

⚫ Monthly rebalancing thereby diminishing the tendency of portfolio drift

⚫ Downside protection through diversification

⚫ Research based investing with a fundamental approach thereby contributing to alpha generation

across the portfolio

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Baroda Dynamic Equity Fund – Asset Allocation

(Data As on 30th June’ ’20)

• The fund was launched in Nov’18 & based on the Proprietary Model’s allocation, it has been dynamically managed based

on the Model’s outcome & is rebalanced each month.

• As can be seen from the above table, the equity allocation has been dynamically adjusted depending upon the changes

witnessed in the markets. The model has shown higher equity allocation in Feb ‘20 – June’20 due to enhanced market

volatility .

• The Fund has 86% exposure to Equities & has a Large cap bias with limited exposure in Mid caps since inception,

however, stock selection is subject to change given the market dynamics & the fund manager’s view.

• A Top-down approach is considered for sector allocation & bottom-up approach is followed for stock picking.

Source : Factsheet 12

867776

68544851

596666654742434044

5358

142324

28

333434

34343333

34343334

3634

34

41218147012

1924242720138

0

1000

2000

3000

4000

5000

6000

0

20

40

60

80

100

120

Jun

e'2

0

May

'20

Ap

r-2

0

Mar

-20

Feb

-20

Jan

-20

Dec

-19

No

v-1

9

Oct

-19

Sep

-19

Au

g-1

9

Jul-

19

Jun

-19

May

-19

Ap

r-1

9

Mar

-19

Feb

-19

Jan

-19

Asset Allocation v/s BSE 200

Net Equity Debt Arbitage BSE Sensex 200 Index Value

Baroda Dynamic Equity Fund - Current Positioning

(Data as on 30th June’ ’20)

(Source : Factsheet, MFIe) 13

Debt, 13.58

Equity, 86.42

Asset Allocation - %

Debt Equity

Bonds & NCDs, 7.99

CGS, 2.34

Tbills, 0.88

TREPS, 3.35

Net Receivables /

Payable, (0.98)

The debt portion of the fund has been

deployed conservatively & has

predominantly invested in AAA rated

papers. It has taken a marginal exposure to

AA rated papers and cash & cash

equivalent.

Credit Rating Allocation - %

The fund’s portfolio consists of an average of 35-

45 stocks , while the category has an average of

53 stocks.

No. of Stocks

43

% of Top 10

Holdings 42 %

AUM in crs. 568

Disclaimer

In the preparation of the material contained in this document, Baroda Asset Management India Ltd. (“AMC”) has used

information that is publicly available, including information developed in-house. The AMC, however, does not warrant the

accuracy, reasonableness and/or completeness of any information. This document may contain statements/opinions/

recommendations, which contain words, or phrases such as “expect”, “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

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. The AMC (including its affiliates), Baroda Mutual Fund (“Mutual

Fund”), its sponsor / trustee and any of its officers, directors, personnel and employees, shall not liable for any loss, damage

of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit

in any way arising from the use of this document in any manner. The recipient alone shall be fully responsible / liable for any

decision taken based on this document. All figures and other data given in this document are dated and may or may not be

relevant at a future date. Prospective investors are therefore advised to consult their own legal, tax and financial advisors to

determine possible tax, legal and other financial implication or consequence of subscribing to the units of the schemes of

Baroda Mutual Fund. Past performance may or may not be sustained in the future. Please refer to the Scheme Information

Document of the schemes before investing for details of the scheme including investment objective, asset allocation pattern,

investment strategy, risk factors and taxation.

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

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