q india fixed incomeqasl.com/email/dc472f79-783b-45e4-a79c-cce67f61fef4.pdflower inflation would...

Q India Fixed Income

India local currency sovereign & quasi-sovereign strategy [

Quantum Advisors Pvt. Ltd

Report for the month ended April 2017

Table 1: Performance of the Q India Fixed Income composite (Composite)

1. The above composite returns are returns of the Q India Fixed Income Composite of Quantum Advisors Private Ltd (QAS

Composite) for the period 18-February-2015 to 28-April -2017) linked with the returns of Q India Fixed Income Composite

of QIEF Management LLC, an affiliate of QAS (QIEF Composite) for the period (24 August 2010 to 17 February 2015),

both of which have been managed under the Q India Fixed Income local currency sovereign & quasi sovereign strategy (Q

India fixed income strategy).

2. The QAS Composite return represents the performance returns of institutional share class of the UCITS fund managed by

QAS on a discretionary basis (the UCITS Fund) during the current period, and the QIEF Composite return represents the

performance returns of the UCITS Fund‟s predecessor (a Mauritius fund that is now a wholly owned subsidiary of the

UCITS Fund, following a re-structuring completed in February 2015) managed by QIEF on a discretionary basis with QAS

as the non-discretionary Advisor, during the prior period.

3. The above returns of the Q India Fixed Income composite returns are net of fees and expenses and reflect the reinvestment

of interest and other earnings. However, it should be noted that the fees and expenses of the UCITS Fund during the current

period have been, and are expected to be, generally higher than the fees and expenses of the UCITS Fund‟s predecessor

during the prior period.

4. The primary benchmark for the Q India Fixed Income Composite is the J P Morgan India Government Bond Index.(*) and

the secondary benchmark is Crisil Composite Bond Fund Index (#)

5. The JP Morgan Indices are globally used by investors for performance benchmarking. The JP Morgan India Government

Bond Index explains in part the India fixed income strategy of investing in Government bonds and PSU Bonds. The CRISIL

composite bond fund index is an index of Government, PSU bonds and private corporate bonds. This index is widely used by

domestic Indian funds to benchmark its bond funds. As the Q India Fixed Income strategy is a mix of government and PSU

bonds, we use both the above mentioned benchmarks. Neither of the indices completely represents the strategy and the

underlying portfolio can be different than the index constituents.

6. The performance shown above does not guarantee future results and future performance can be lower or higher than the

data quoted.

7. The NAV of the constituent of the composite is declared in USD terms. For the purpose of computing performance returns

of the constituent of the composite in INR terms the USD NAV has been translated into INR. The conversion rate used for

the said purpose was sourced from the Reserve Bank of India website till July 31, 2012. The source for the same was

changed to “Reuters” from August 1, 2012 till date.

8. The investment manager wish to highlight an error occurred in the “reported benchmark performance returns” in our past

newsletters. The details of the same along with its impact are mentioned at the end of this newsletter.

Source – QIEF Management LLC, Mauritius, Quantum Advisors Pvt Ltd, Mumbai,

April 2017

CY 2017

CY 2016

CY 2015

CY 2014

CY 2013

CY 2012

Since

Inception

Composite USD 0.59% 4.39% 8.64% 0.24% 10.82% -8.07% 5.84% 1.88%

Benchmark

USD(*) 0.72% 5.11% 12.39% 3.01% 14.34% -8.57% 7.62% 4.19%

Composite INR -0.34% -1.05% 11.45% 5.06% 13.09% 3.78% 8.87% 6.90%

Benchmark

INR(#) 0.04% 0.84% 12.93% 8.63% 14.31% 3.79% 9.38% 8.69%

India Fixed Income Mandate Summary

The objective of the mandate is to generate income and

capital gains by investing in fixed income securities

denominated in Indian Rupees which could be issued by

The Federal Government of India (Sovereign/

Government Bonds);

Government-owned companies (Public Sector

Undertakings – PSU) of Indian origin (PSU

Corporate Bonds);

The mandate is Long-only; unhedged; with no leverage.

Table 2: A sovereign and quasi sovereign portfolio with defined

Restrictions and Risk Controls

Security

Min / Max

Weight in

Portfolio

Per Issuer

Maximum

Limit

Per Issue

Maximum

Limit

Government

Bonds 0% / 100% No Limits

50% of Net

Assets

AAA PSU

Corporate

Bond

0% / 100% 10% of Net

Assets

10% of

Outstanding

Issue

Table 3: Credit Rating Matrix – Safe and Simple

(* - domestic credit rating)

Mandate Investment Restrictions

In government bonds, foreigners will be allowed to own

upto 5% of the outstanding government bonds by March

2018. This will allow foreigners to invest a cumulative

USD 18 bln until March 2018.

The current investment of foreigners in Indian Debt till

April 2017 is approx. USD 61.0 billion.

Although the Government has now simplified the

categories and process of investing into the Indian bond

market, government bond limits may still not freely

available and hence the restriction and availability of

limits and categories to invest can significantly impede the

account performance. The ban on investment in T-Bills

and on securities with <3 year maturity will impact

portfolio flexibility while reducing duration.

Chart 1: Foreign Investors Bond Investment limits

(Source: SEBI)

Key Mandate Drivers.

A summary of the key drivers towards account

performance in the near term.

Table 4: India Macro Summary

Indicators Rationale Likely Impact

Interest

Rates

Key driver of

bond returns

RBI has

eased rates

by 175 bps;

Stance

changed to

neutral

Don‟t expect

cut in Repo

Rates;

Bond Curve to

Steepen

Inflation

Lower

inflation

would help

RBI in

cutting rates

CPI to

remain

below 5%

RBI worried on

global

commodity

prices.

Fiscal

Deficit

Fiscal

Consolidation

to avoid

rating

downgrade

Govt.

commits to

F.D of

3.0%/GDP

Budget was not

populist and

not inflationary

CAD/

Rupee

High CAD

impacts rupee

movement

CAD should

remain well

below 2.0%

of GDP in

CY 17

INR finding

strength as RBI

holds rates. and

Modi wins

elections

GDP

growth

Higher

growth =

Improved

sentiment

Investment

cycle weak

but GDP

recovering

RBI can‟t

resuscitate

growth.

(Source – Quantum Advisors Pvt ltd )

Investment Limits

for Foreigners in government bonds

(USD 32 bln)

Government Bonds

( USD 21.6 bln

Auction

(USD 8.4 bln- On Tap)

Only for SWFs; Pensions;

Endowments; Central Banks

State Development

Loans

(USD 2.0 bln)

Corporate Bonds

(USD 51 bln)

On-Tap

Min Max

India Sovereign 0% 100%

India AAA* PSU 0% 100%

All investments only in above

3 year residual maturity


Portfolio Characteristics

The account saw some increase in duration at the end

of the month as 10 year bond yields traded near the

7% mark. We believe in the near term yields have

peaked and will trade in a lower range in the short

term. The account is still we believe underweighted

to AAA PSU corporate bonds and should see an

increase in its allocation

Table 5: Portfolio characteristics and Measures

Portfolio Measures INR INR Ex- cash

Portfolio Yield 6.76% 7.20%

Portfolio Duration(yrs) 4.61 4.91

Portfolio Maturity(yrs) 6.52 6.94

Portfolio PVBP 0.04 0.05

Chart II: Portfolio Maturity Bucketing

Table 6: Portfolio Sectoral Allocation

Sector based

Report

% of

Portfolio

Weighted

YTM

Weighted

Key Rate

Duration

Utilities 16.95% 7.45% 0.54

Finance/NBFC 2.62% 7.57% 0.12

Government 74.29% 7.13% 3.95

Source for all above tables/charts – Quantum Advisors, Mumbai – calculated on

a portfolio weighted basis, Data as at 28th April 2017 Portfolio measures, sector based allocations of portfolio and maturity profile

of the portfolio is as of 28th April 2017. There is no guarantee that, this will

remain same and it may change at future date.

Indian Bond markets renewed its bearish upward

movement in yields in April with the outgoing

benchmark 10 year government bond paper bearing

the brunt with an increase of 27 bps in its yield to end

the month at 6.96%. On an average across the curve,

the yields have risen by about 15 bps in April. The

composite still returned 0.6% for the month helped in

large by the appreciation of the INR against USD

Chart III: Indian Government bond yields are now higher than pre-

demonetization level of 7th November

(Source : Bloomberg. From 8th November the government announced

demonetization of high value currency which led to sharp fall in bond yields )

The rise in yields since December was triggered

initially post the RBI monetary policy committee

(MPC) decision wherein they chose to maintain status

quo in a hugely non-consensus move. This led to the

first bout of rise in bond yields as the bond market

had priced in aggressive rate cuts which began to be

un-winded.

The next move up was post the monetary policy

decision of February, wherein not only did the RBI

MPC maintain the Repo rate on hold but it changed

its overall monetary policy stance from

accommodative to neutral. They did so sighting

buildup of inflationary expectations and the RBIs

desire to secure the 4% CPI inflation target on a

durable basis. The bond market read it as „end of the

rate cutting cycle‟ which led to further shedding up

off duration.

In the April monetary policy they retained their

neutral outlook and also indicated steps to suck out

the excess liquidity.

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50

0.0

2.0

4.0

6.0

8.0

10.0Duration (LHS) 10 Year Yield

5.5

6.0

6.5

7.0

7.5

8.0

7-N

ov

20

-No

v

3-D

ec

16

-De

c

29

-De

c

11

-Jan

24

-Jan

6-F

eb

19

-Fe

b

4-M

ar

17

-Mar

30

-Mar

12

-Ap

r

25

-Ap

r

5 yr 10 yr 30 yr


Table 7: RBI MPC finding its feet?

MPC

Meeting

Expecta

tion Decision Vote Stance

Oct‟16

Hold

rates

unchang

ed

Repo

Rate cut

by 25

bps to

6.25%

6-0

Growth

Focussed;

4% inflation

target over

medium

term

Dec‟16

Cut by

25 to 50

bps

Repo

Rate Un-

changed

6-0

Inflation

worries

;

Demonetisa

tion

fuzziness

Feb‟17 Cut by

25 bps

Repo

Rate Un-

changed

6-0

Commitmen

t to 4%;

Stance

changed to

Neutral

from

accommoda

tion

Apr‟17 Un-

changed

Repo

Rate Un-

changed

6-0

Neutral

Stance;

Steps to

remove

excess

liquidity

(Source : RBI - Monetary Policy Report, Quantum Data)

The RBI monetary policy minutes for April released

later in the month saw one RBI-MPC member

indicating a pre-emptive rate hike.

This did take the markets by surprise as at a time of

current headline CPI inflation around 4% and benign

commodity prices and stronger rupee even the

thought of a rate hike sounds extremely hawkish. The

RBI we believe is trying to stake back its credibility

that it had lost during the demonetization fiasco.

Thus the recent moves to not cut rates, moving to

neutral stance, committing to secure 4% headline CPI

inflation in a durable manner before March 2019 and

the indication to hike rates even at this benign

juncture should be read as RBIs intention to regain its

institutional credibility.

It just shows RBI‟s intention to achieve the 4%

inflation target on a durable basis and that it will not

shy away from non-consensus actions to contain

inflationary expectations. This should put off

whatever little expectations markets had on

possibilities of rate cuts.

In fact, if monsoons indeed turn out to be poor with a

resultant increase in food prices, India could well be

seeing a reversal in the rate cycle as early as October

– December.

The 10 year government bond yield almost touched

the 7% mark post the release of the minutes. The

bond markets have really given up all hopes on any

further rate cuts by the RBI.

Chart IV: Bond markets have given up on rate cut expectations?

(Source : Bloomberg)

As seen in Charts III&IV, bond yields, term spreads

and the curve itself are all moving upwards. This is a

pretty good sign of the bearishness on the Indian bond

market curve.

Apart from the change in market expectations on rate

cuts, the other issue for the Indian bond market to

grapple would be on the manner in which the RBI

manages the excess liquidity situation.

Demonetization left the banking system with excess

liquidity leading to distortion in market yields. The

RBI has finally signaled its intent in managing the

resultant liquidity situation.

6.00

6.50

7.00

7.50

8.00

8.50

9.00

9.50Repo Rate 10 yr Treasury


The RBI narrowed the interest rate corridor with the

Reverse Repo rate (the rate at which banks lend to

RBI) now at 6.0% (from 5.75%) and the Marginal

Standing Facility (MSF) now at 6.5% (from 6.75%

earlier). The 25bps increase in the reverse repo rate is

not to be seen as a rate hike, but as a calibrated move

to ensure better liquidity and interest rate

management.

Chart V: Indian Banks awash with liquidity since demonetization

(Source : RBI, Quantum Calculations)

The banking system is still flush with excess liquidity

of more than INR 4 trillion (~USD 60 billion). This

liquidity has resulted in overnight and short term rates

trading below the Repo rate.

For instance, the 91 day treasury bill yield was

trading at 5.75% as against the Repo rate of 6.25%.

The Repo rate is the policy rate of the RBI. It is

imperative for the conduct of monetary policy that the

RBI maintain overnight and short term rates near or

above the Repo rate.

We were thus expecting RBI to take strong measures

to suck out the excess liquidity and bring about sanity

to short term interest rates.

The RBI has addressed it but chose to do it in a non-

disruptive manner. It is a smart move and seems to

have had its desired impact without too much market

impact. Instead of hiking the Cash Reserve Ratio

(CRR), they have chosen to raise the Reverse Repo

rate and use other sterilization measures to mop up

liquidity to thus try and align the short term market

interest rates.

Chart VI: Liquidity distorts India rate sanctity

(Source : Bloomberg)

Along with this, they would also use longer tenor

reverse repos, issue MSS (sterilization) bonds, Open

Market Operations (sell government bonds) among

others to manage liquidity at a level to maintain

sanctity of the Repo rate. Short term rates (overnight

and treasury bill rates) will move in the 6.0% - 6.25%

band and move above the 6.25% mark as currency in

circulation increases (people withdraw the re-

monetized money from banks) and the liquidity

surplus dwindles. We expect liquidity to get back to

neutral from the current surplus in 2 more quarters.

Portfolio Outlook and Strategy:

Our base view remains of a long rate pause but our

portfolio positioning is already biased towards low

duration / high spread assets within the remit of the

account of investing in Sovereigns and AAA rated

quasi-sovereigns.

The account had raised its cash levels in the end of

March taking advantage of the year end valuation

driven rally. We deployed the cash post the sell-off in

yields in some illiquid sovereign spread papers in the

10-12 year segment as it was available at more than

50 bps spread over the equivalent liquid paper.

This had led to overall fund duration slightly higher

than last month and above our comfort level at this

stage of the cycle.

(4,000)

(2,000)

0

2,000

4,000

6,000

8,000

10,000

INR

Bill

ion

s

System Liquidity

Core Liquidity

5.70%

5.80%

5.90%

6.00%

6.10%

6.20%

6.30%

6.40%

6.50%

Repo Rate 3 Month T-Bill

1 Year T-Bill

7th Nov'16

31stMarch'17

28April'17


We would look to balance the increase in duration by

taking profits in some other papers and/or holding

some cash positions or both.

As highlighted earlier, the fund is also likely to see an

increase in allocation to the AAA PSU papers in the

3-5 year category away from front end sovereign

papers. We are awaiting further increase in spreads

which is likely as corporate bond supply increases in

the next two months.

Although, the FED is unlikely to move in May, but

we feel it is about time the US FED begins to lead

than follow the market in its rate normalization

process.

Post the September German election, one should also

expect a combined action of US Fed Balance sheet

unwinding and ECB taper. The one pager Trump tax

reform seems will take a long time to fructify into a

legislative action but whenever the congress acts on

it we do think US fiscal deficit will increase.

Chart VII: Indian bonds re-aligned to global trend

(Source : Bloomberg, 10 year bond yield, Data as at April 2017)

With these risks in horizon, we expect the RBI to

remain conservative and focused on domestic

inflation and stability. We do think there has been

some change in the RBIs FX management policy.

They don‟t seem as intent in buying FX reserves and

arresting INR appreciation.

The INR thus remains one of the best performing EM

currency.

Chart VIII: INR not fragile anymore?

(Source : Bloomberg, data as at 28th April 2017)

Macro (CAD, Inflation and politics) supports the

positive sentiment towards India and is reflected in

the continued inflows by foreign portfolio investors

into Indian Equity and Debt.

Chart VIII: Foreigners looking at India bonds again?

(Source : Bloomberg, NSDL)

We expect foreign investors to continue to invest/add

on to India debt on the stable outlook on INR and

higher nominal rates and spreads available which will

continue to enthuse the overseas investors.

-100

-75

-50

-25

0

25

50

75

100bps change of 10 year bond

Nov-16 Dec-16 YTD 2017

40

60

80

100

120

2012 2013 2014 2015 2016 2017

IndianRupee

Indonesian Rupiah

BrazailianReal

SouthAfricanRandTurkishLira

Indian Rupee vs Fragile Five

-6000

-4000

-2000

0

2000

4000

6000

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

FII Net Monthly Flows 10 yr GsecUSD Mln


A Primer on Indian Fixed Income

Investing in India – a macro view on growth and

stability

India‟s stable and growing economy, favorable

demographic profile, democracy and the strength of its

institutions bodes well for a long term improvement in its

fundamental strength as a nation.

India’s economic growth, which has averaged 6.2% per

annum for the past 30 years across 9 governments, 6 of

which have been coalitions; can achieve 7% growth on

better policy making and investments in infrastructure.

Chart 1: Solid GDP growth of 6.2% per annum in last decade

Source – Quantum Advisors, shows average annual rate of growth in GDP

during the regime of every government

Foreigners are under invested in Indian Bonds

India is an investment grade destination with a stable

outlook. Further fiscal reforms (mandated by an act of

parliament) could lead to upgrades in its foreign currency

rating overtime. Global pension and endowment funds

could view the upgrades favorably and look to allocate to

Indian bonds.

Chart 2: Foreigners own Indian Equities; Time to Bond with India

Source – sebi.gov.in, Bloomberg, Data as of April 2017

India is a trillion dollar bond market.

Government bond markets are fairly liquid and recent

measures to develop the corporate bond and corporate

infrastructure bond market are likely to bear fruit. India‟s

bond markets are fairly well-developed compared to some

other emerging market peers.

Chart 3: Can you ignore a large bond market?

Source – NSE;; Data upto Mar 2016

The stable political mandate should augur well for India‟s

policy making. The new Governments focus on fiscal

consolidations is needed for improving the Indian macro

situation

Chart 4: Domestically funded fiscal Deficit

Source– ADB Bonds online, RBI, Data as Dec 2016: Quantum Data

414, 46%

233, 26%

51, 6%

75, 8%

45, 5% 82, 9%

Govt. Bonds

State Govt Bonds

Treasury Bills

PSU Bonds

Bank Bonds

Corporate Debt

(USD Bln , as a % of total ) - Total Size : USD 900 Bln


India will eventually be a part of a global bond index widening the investor base and leading to substantial

inflows at the minimum of USD 20-25bln. Foreign

investors own less than 5% of all outstanding bonds

(government and corporate) and account for around 10% of

the daily volumes in the bond market. But this will change

as the limits for foreign investments into Indian bond

markets increase over the next decade.

Chart 5: India is seeking „Long Term‟ investors in the bond market

(Source: SEBI)

Rules relating to foreign investments into bond markets have

been relaxed substantially and going forward it is likely that

these may be relaxed further. India now has a separate limit

in Government bonds for Long term foreign investors like

SWFs, Pensions; and Central banks; thus signaling its intent

to attract long term money into its bond market.

Chart 6: Domestic Banks and Insurance/Pensions own Govt bonds

Source – ADB Online Report –September 2016: Quantum Data

India’s financial reforms have helped channel retail

savings into banks, insurance and mutual funds making

them dominant players in the bond and money market.

India’s bond market will evolve over time in size, depth,

breadth, and resiliency and all else being equal this will

reduce yields, potentially enhancing the value of an

underlying portfolio built by at current yields of around

9%.

Chart 7: Indian corporate bond market needs to evolve

Source– Bloomberg; ADB Bonds online. BIS RBI, Data as of June 2016

A consistently conservative/prudent Central bank now

under Dr. Urjit Patel maintains macro-economic and

financial stability. Dr.Rajan‟s focus on lowering inflation

and providing „Real‟ returns for domestic and foreign

investors was laudable and is expected to continue. A

committee has recommended RBI to move towards single

indicator / inflation targeting approach.

Chart 8: RBI has moved to Inflation Targeting

Source– Mospi; RBI; Current Repo Rate =6.25%; Quantum Estimates from

Feb‟17- Dec‟ 17

Investment Limits

for Foreigners in government bonds

(USD 26 bln)

Government Bonds

( USD 20 bln

Auction

(USD 5.5 bln- On Tap)

Only for SWFs; Pensions;

Endowments; Central Banks

State Development

Loans

(USD 0.5 bln)

Corporate Bonds

(USD 51 bln)

On-Tap 131 135 160 220

698 741

4706

20 98 129 76 202

1051

2198

0500

100015002000250030003500400045005000

Government Bonds

Corporate Bonds

Bond Market Capitalisation (USD bln)

2.00

4.00

6.00

8.00

10.00

12.00CPI CORE CPI RBI CPI Target

All investments only in above

3 year residual maturity


Indian bonds offer high nominal yields and spreads

Chart 9: India 10 year Sovereign yields around 6.8% now only 400+ bps

spread over US treasuries

Source – Bloomberg, Data as April 2017

Indian Rupee is the joker in the pack – but it can swing

500 bps annually before it makes you cry – of course, we

hope it makes you laugh!

Chart 10: Is the Indian Rupee the friendly joker in the pack that could add

to overall returns?

Source – Bloomberg, Annual calendar returns, Data upto April 2017

India being a current account deficit country will suffer from

bouts of rupee depreciation due to global risk aversion. But

we feel it would be temporary as the growth prospects would

draw in capital flows leading to stability in the currency.

India’s current account deficit (driven by oil and gold) if

kept below 3% of GDP would lead to lower vulnerability

and lesser dependence on external capital. An increase in

CAD during a period of global stress tends to amplify

India‟s funding requirements and leads to currency volatility.

Chart 11: Growth and Stability to draw in capital flows

Source – RBI, Data as of March 017: Quantum Estimates

The silver lining for India is that a period of sustained

growth can lower the fiscal deficit; increase investment

confidence and hence draw in more capital flows to be easily

able to fund the current account deficit.

RBIs resolve in increasing Forex Reserves to impart FX

stability would go a long way in increasing confidence on

the INR which was impacted in the summer of 2013.

India‟s high domestic savings, high forex reserves and low

external debt/GDP does provide a buffer but we still need

capital flows of 5% of GDP to keep the currency stable

Chart 12: RBI has to build FX reserves to stabilize INR

Source – Bloomberg, data upto April 2017

0.0

2.0

4.0

6.0

8.0

10.0

2002 2004 2006 2008 2010 2012 2014 2016

India 10 Year Govt. Bond YieldIndia Govt. Bond (Spread over UST)India AAA PSU Bond (Spread over UST)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

CY

20

01

CY

20

02

CY

20

03

CY

20

04

CY

20

05

CY

20

06

CY

20

07

CY

20

08

CY

20

09

CY

20

10

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

Rupee Returns INR/USD Change Dollar Returns


India Fixed Income Mandate Summary

The objective of the mandate is to generate income and capital gains by investing in fixed income securities denominated in

Indian Rupees issued by

Federal Government of India (Sovereign/Government Bonds);

Government-owned companies (Public Sector Undertakings – PSU) of Indian origin (PSU Corporate Bonds);

The mandate would be Long-only; with no leverage and un-hedged

Foreign investor Bond Investment Limits Increased – Attracting Long-Term Investors

Foreign investment in Indian bond markets is restricted. But the limits have been increased substantially in the last two years.

The Government has recently opened up a separate limit for Global Sovereign and Pension Funds.

We at Quantum focus on investing in Indian Sovereigns and Quasi-Sovereigns to offer a mandate which is safe, liquid and the

capacity of which is restricted only by limits on foreign investments rather than liquidity and safety of the underlying.

Chart 13: India Fixed Income Investment Landscape

(Source : Quantum Data; Bloomberg)

Table 1: Mandate Investment Avenues

Instrument/ Category Segment of the yield curve Key Rationale

Government Bonds Most Active – 5/10/30 Liquidity, Duration

AAA PSU Bonds/Utilities/ Banks/

Infra financing Most Active – 1-3 year

5 and 10 year

Govt. ownership / Spreads

/ Infrastructure Link

6.8%

7.5%

7.8%

9.5%

18.0%

0.0% 5.0% 10.0% 15.0% 20.0%

5 Yr Government

Bond

5 Yr PSU

5 Yr AAA

5 Yr A

Real Estate

Liquid

and

Safe

Illiquid

and

mis-priced

Reputation

Risk


Important Information and Disclosure in relation to the past “Reported benchmark performance returns” The benchmark for the Q India Fixed Income composite (in INR terms) is “Crisil Composite Bond Fund Index” (Crisil Index),

which we believe is the appropriate index for comparing the performance of the strategy in INR.

However, beginning Jan-2015, due to some inadvertent manual error, we have been reporting the benchmark returns of “I-Sec

Bond Index” for certain periods under the heading Xrisil Index.

This error was identified by our performance team in April 2017 and the corrected numbers are reflected in this newsletter of

April 2017 with the correct benchmark returns of “Crisil Composite Bond Fund Index” for the purpose of evaluating the

performance of the strategy in INR

A comparative analysis of the periods during which error has happened has been provided below:

Period reported in Newsletter

CY 2015 CY 2014 CY 2013 CY 2012

Incorrect – I-Sec Bond Index 8.37% 15.12% 4.12% 10.99%

Correct - Crisil Composite Bond Fund Index) 8.63% 14.31% 3.79% 9.38%

Difference in reported performance -0.26% 0.81% 0.33% 1.61%

As it can be seen from the table above, the error has resulted into understating the performance returns of the benchmark for

the year CY 2015 and overstating the performance returns of the benchmark for the years CY 2012, CY 2013 and CY 2014.


About Quantum Advisors Private Limited (QAS )

Investing with principles.

To build an India-focused investment management institution,

that can consistently make money for our clients without taking undue risks

over longer time horizons and chart a controlled growth in our AuM

across the major asset classes: equity, fixed income, real estate, infrastructure

Investment Advisors: A disciplined, proprietary, long-term investment process - in a sustainable macro-framework

Quantum Advisors, is a Mumbai-based SEBI registered Portfolio Manager, an SEC* registered Investment Advisor and a “Restricted Portfolio

Manager” in the Canadian provinces of British Columbia, Ontario and Quebec. Its 100% subsidiary Quantum AMC, a Mumbai based SEBI

registered Investment manager provides research services to Quantum Advisors.

The fixed income research and investment teams at Quantum AMC and Quantum Advisors follow a robust Macro to Micro top down approach.

They maintain proprietary credit research models with qualitative assessments and quantitative forecasts

These proprietary research reports have been debated and approved by the team at Quantum AMC

Quantum‟s desire to help build a sustainable, profitable long-term portfolio for clients is paramount; and is reflected in the diligent long-term

quantitative and qualitative research process.

The Fixed Income research team at Quantum Advisors is led by Arvind Chari, Head of Fixed Income and Alternatives. .

Arvind has over 12 years‟ experience in Indian fixed income markets across dealing, research and portfolio management. Arvind joined Quantum

in 2004 as Research Analyst – Fixed Income to build the fixed income and macro economy research function and also to help develop fixed

income products for Quantum Mutual Fund. Arvind holds a Masters in Commerce(M.com) and Masters in Management Studies (MMS) from the

Mumbai University

*While we shall comply with all applicable regulations and it is our endeavour to follow industry best practices for the benefit of all our clients, non-US

persons and investors in our non-US funds should take note that registration of QAS as an investment adviser with SEC does not imply that our non-US

clients are entitled to the full benefit of all substantive provisions of the Investment Advisers Act 1940 (Advisers Act) or that we are required to comply

with all the provisions of the Advisers Act in our dealings with our non-US clients, including non-US funds. We will thus have responsibilities under the

Advisers Act that differ from client to client, based on whether or not the client is a non-US client”.

This newsletter is strictly for information purposes only and should not be considered as an offer to sell, or solicitation of an offer to buy interests in the

account. Investments in the fixed income instruments are not guaranteed or insured and are subject to investments risks, including the possible loss of the

principal amount invested. The value of the securities and the income from them may fall as well as rise. Past performance is not necessarily indicative of

future performance. Quantum Advisors reserves the right to make the changes and corrections to its opinions expressed in the document at any time,

without notice. Information sourced from third parties cannot be guaranteed or was not independently verified. Comments made herein are not

necessarily indicative of future or likely performance of the account and are based on information and developments as at 28/04/2017 unless otherwise

stated.

All of the forward-looking statements made in this communication are inherently uncertain and Quantum Advisors (QAS) cannot assure the reader that

the results or developments anticipated by QAS will be realized or even if realized, will have the expected consequences to or effects on, us or our

business prospects, financial condition or results of operations. A prospective investor can generally identify forward-looking statements as statements

containing the words “will,” “should”, “can”, “may”, “believe,” “expect,” “anticipate,” “intend,” “contemplate,” “estimate,” “assume”, “target”,

“targeted” or other similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements in making any

investment decision. Forward-looking statements made in this communication apply only as of the date of this communication. While we may elect to

update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if internal estimates change, unless otherwise

required by applicable Securities laws.

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