May 2024 Market Insight: Fixed Income Webinar by UTI Mutual Fund

1. An Overview and Outlook on the Fixed Income Market May 2024 1

2. Global Trends 2

3. Global economic activity picking up JPMorgan Global PMI Number of countries with output declines Manufacturing PMI Services PMI 60.0 58.0 56.0 54.0 52.7 52.0 50.0 50.3 48.0 46.0 Jun-21 Aug-21 Jun-22 Aug-22 Jun-23 Aug-23 Apr-21 Apr-22 Apr-23 Apr-24 Dec-21 Dec-22 Dec-23 Oct-22 Oct-21 Oct-23 Feb-22 Feb-23 Feb-24 Source: Bloomberg Source: OECD  Global business confidence improving; Growth remains divergent in near term due to weak recovery in EU & China  Corporate profits remain strong on supply side improvement. Household balance sheets remain resilient 3

4. Commodity & Food Index Bloomberg Commodity Index (USD) FAO Food %YoY 150 43.0 140 38.0 33.0 130 28.0 120 23.0 110 18.0 100 13.0 90 8.0 3.0 80 -2.0 70 -7.0 60 -12.0 50 -17.0 40 -22.0 Jan-21 Jan-20 Jan-22 Jan-23 Jan-24 Oct-19 Oct-20 Oct-21 Oct-22 Oct-23 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24 Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 Oct-19 Oct-20 Oct-21 Oct-22 Oct-23 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24 Jul-20 Jul-19 Jul-21 Jul-22 Jul-23  Demand outlook improving; supply squeeze in select sectors  Metal prices on divergent paths. Base and battery metals trending higher. Bulk commodities lag.  Energy prices & normal monsoon are key monitorables for global food prices Source: Bloomberg 4

5. Inflation continues to be persistent US UK Japan Eurozone Canada Peak CPI (%) Mar'24 CPI (%) 12.0 10.0 11.1 10.6 8.0 9.1 8.1 6.0 Oct’22 Oct'22 4.0 Jun'22 Jun’22 4.3 2.0 3.5 3.2 2.9 2.7 2.4 Jan’23 0.0 -2.0 Dec-21 Jun-22 Sep-22 Jun-23 Sep-23 Dec-22 Dec-23 Mar-22 Mar-23 Mar-24 US UK Japan Eurozone Canada  Inflation has moderated from its peak levels but remains above “target” levels on sticky service inflation.  Lower energy prices, base effects & moderate momentum should pull inflation down although monetary policy expected to remain prudent to ensure inflation is well contained  Expect modest rate cuts Source: Bloomberg 5

6. 10Y Sovereign yield movement in key economies Bond yields rose on spillover effects from stronger US inflation data as market participants pushed back rate cut expectations India was the strongest performer   Source: Bloomberg, Data as of last trading day of respective months 6

7. Financial conditions continue to remain easy Bloomberg US Financial Conditions Index Market Implied Policy Rate Forecasts 5.3 5.1 1.2 4.9 1.0 4.7 0.8 4.5 0.6 4.3 0.4 4.1 0.2 3.9 0.0 3.7 -0.2 3.5  Moderation in rate cut expectations on strong inflation data Source: Bloomberg 7

8. India Trends 8

9. Domestic Inflation Rates CPI and Core CPI Inflation (% YoY) CPI Diffusion Index 7.79 70% 7.44 7.41 8.0 6.83 7.5 60% 6.52 7.0 50% 6.5 5.72 5.69 5.55 40% 6.0 5.02 5.1 5.1 4.87 4.87 5.5 4.9 4.9 30% 4.6 4.31 4.5 5.0 20% 4.5 3.8 4.0 10% 3.5 0% 3.0 Mar-17 Nov-15 Mar-15 Mar-16 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22 Nov-23 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 Mar-22 Mar-23 Mar-24 Jun-22 Jul-22 Aug-22 Sep-22 Jun-23 Jul-23 Aug-23 Sep-23 Apr-22 Dec-22 Apr-23 Dec-23 Q1FY25E Q2FY25E Q3FY25E Q4FY25E Oct-22 Jan-23 Oct-23 Jan-24 May-22 May-23 Nov-22 Feb-23 Nov-23 Feb-24 Weight of Constinuents >= +5% RBI Estimates CPI Core CPI  CPI inflation in Mar fell further to 4.85% y/y vs 5.09% y/y in Feb  Consistent broad-based easing in core inflation  Soft global food prices, a decaying El Niño and a forecast of La Niña point to muted domestic food prices  Impact of an upcoming heat wave on vegetables, low reservoir levels, and frequent and overlapping adverse climate shocks pose upward risks Source: Bloomberg, RBI, MOSPI, UTI Research 9

10. India Credit & Deposit Growth Non-food Credit Growth (%y/y) Deposits Growth (%y/y) Non-food Credit Growth (%y/y) ex HDFC Deposits Growth (%y/y) ex HDFC 21.0% 19.0% 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% Non-food credit remained buoyant at 16.3% YoY in March vs. 16.5% YoY in Feb’2024 (ex-HDFC) Retail loans grew at 17.7% YoY vs 18.1% YoY in Feb’2024 (ex-HDFC) Unsecured loan growth decelerated for the second consecutive month to 18.7% YoY vs 19.7% YoY in Feb’2024 (ex HDFC)    Source: UTI Research; ex HDFC – excluding HDFC 10

11. System Liquidity System Liqudity MIBOR 300000 9.0 250000 8.5 200000 150000 System Liquidity (INR Cr) 8.0 100000 50000 7.5 MIBOR (%) 0 -50000 7.0 -100000 6.5 -150000 -200000 6.0 -250000 -300000 5.5 -350000 -400000 5.0 27-Feb 26-Sep 13-Feb 20-Feb 7-Mar 4-Apr 2-May 9-May 6-Jun 4-Jul 16-Jan 23-Jan 30-Jan 5-Mar 2-Apr 9-Apr 15-Aug 22-Aug 29-Aug 10-Oct 17-Oct 24-Oct 31-Oct 12-Sep 19-Sep 5-Dec 7-Nov 12-Dec 2-Jan 9-Jan 11-Jul 6-Feb 14-Mar 21-Mar 28-Mar 11-Apr 18-Apr 25-Apr 18-Jul 25-Jul 3-Oct 12-Mar 19-Mar 26-Mar 16-Apr 23-Apr 30-Apr 16-May 23-May 30-May 13-Jun 20-Jun 27-Jun 1-Aug 8-Aug 19-Dec 26-Dec 5-Sep 14-Nov 21-Nov 28-Nov  RBI has been intervening through fine tuning operations to stabilize call rates with repo & reverse repo operations Source: Bloomberg 11

12. Trade deficit moderates Monthly foreign trade aggregates (US$ bn) Growth YoY Mar-23 Jan-24 Feb-24 Mar-24 Feb-24 Mar-24 Trade Balance -19.0 -16.5 -18.7 -15.6 Exports Oil exports Non-oil exports 42.0 33.6 8.4 36.9 28.7 8.2 41.4 33.2 8.2 41.7 36.3 5.4 11.9 13.7 5.0 -0.7 8.0 -35.4 Imports Oil imports Non-oil imports Gold Imports 60.9 18.0 39.6 3.3 53.4 15.5 35.9 1.9 60.1 16.9 37.1 6.2 57.3 17.2 38.5 1.5 12.2 0.1 8.8 133.8 -6.0 -4.4 -2.7 -53.6 Services Surplus 13.5 16.2 13.1 12.7 Exports 30.4 31.0 28.3 28.5 3.5 -6.2 Imports 17.0 14.9 15.2 15.8 1.8 -6.6 Source: IDFC FIRST Bank Economics Research 12

13. India Sovereign Curve 3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 8Y 9Y 10Y 11Y 12Y 13Y 20Y 30Y 40Y 50Y 7.7 7.5 7.3 Yield (%) 7.1 6.9 30-Apr-24 28-Mar-24 30-Apr-23 6.7 6.5 20 12 10 1M Spread YoY Spread Change (Bps) 3 0 0 -1 -1 -1 -1 -1 -1 -2 -2 -3 -3 -3 -3 -3 -3 -3 -4 -4 -5 -6 -10 -12 -12 -20 -23 -24 -25 -26 -28 -29 -40 3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 12Y 13Y 20Y 30Y 40Y 50Y Source: Bloomberg 13

14. Yields remained stable across the board on improved demand supply 3 YEAR RATES (%) 1 YEAR RATES (%) 8.34 8.33 8.24 8.42 8.32 8.24 7.80 7.76 7.61 7.77 7.66 7.56 7.19 7.05 7.06 6.97 7.00 6.99 G-SEC AAA AA T-BILL AAA AA 5 YEAR RATES (%) 10 YEAR RATES (%) 8.34 8.23 8.39 8.16 8.28 8.25 7.65 7.69 7.58 7.61 7.57 7.52 7.20 7.19 7.06 7.12 7.00 7.06 G-SEC AAA AA G-SEC AAA AA Apr-23 Mar-24 Apr-24 Source: Bloomberg, Data as on last business day of the respective months 14

15. Outlook  The significant volatility in the data over the past three months has made it difficult for the central banks & market participants to separate signal from noise. Hence central banks may refrain from committing themselves to a pre- determined path till a clear trend emerges  Monetary space for central banks on moderating inflation & growth from a very high base of 2022 and 2023  Barring a growth shock, central banks are expected to deliver largely “maintenance” or “tactical” rate cuts  The base case for 50-75 bps rate cuts in FY25 with inflation is expected to remain in a declining trajectory and average 4.5% approximately in FY25  Moderate duration products possibly provide the best risk-reward in a scenario of shallow rate cut cycle  The high real bond yields today present a suitable opportunity for patient investors to experience high accrual as well as the possibility of participating in capital gains as the rate cycle turns  Investors with a 6-12 months horizon can consider an allocation to low duration/ money market strategies given the considerable gap between overnight rate and money market rates (up to 12 months); Investors with more than 12 months investment horizon can consider allocation towards moderate duration (one-to-four year) categories 15

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