[PPT] - Economy and Markets June 2020 The worlds battle with COVID -19 PowerPoint Presentation

SLIDE 1

Economy and Markets

June 2020

SLIDE 2

The world’s battle with COVID-19 continues

SLIDE 3

World-wide situation of the COVID-19

Source: WHO, as of 3rd June 2020

Total number of confirmed cases stands at 62,87,771 as of 3rd June 2020.
The mortality rate in June has declined when compared to the averages of May and April.
Mortality rate stands at 6% as of 3rd June 2020 lower than. 6.7% in May 2020 and 6.3% in April 2020..

(Source : WHO) 6.28 million cases of COVID-19 as of 3rd June 2020 Mortality rate stands at 6% as of 3rd June 2020

SLIDE 4

Country-wise COVID-19 cases

Source: CEIC; World Bank; Cases as of 3rd June 2020; Population as of 2018; Data labels in the graph corresponds to total number of COVID-19 cases

Country-wise spread of the disease

United states account for highest number of COVID-19 cases (29%) followed by Brazil (8.3%), Russia (6.8%) and United

Kingdom (4.4%)

India now has the seventh-highest number of COVID-19 cases. While, in absolute number, India ranks 7, in terms of total

cases (% of population) , the ranking is much below at 131.

Qatar has the highest cases (as % of population) at 2.17%.

SLIDE 5

Medical research to combat COVID-19

Source: WHO, News reports; Data as of 30th May 2020

WHO has raised US$8.1 billion in pledges and implementing an access to COVID-19 Tools Accelerator for global vaccine development. The Coalition for Epidemic Preparedness Innovations (CEPI) is working with global health authorities and vaccine developers to raise US$8 billion in a global partnership between public, private, philanthropic, and civil society organizations for accelerated research and clinical testing of eight vaccine candidates. The Global Alliance for Vaccines and Immunization (GAVI) is financing and

rganizing

clinical groups in under-developed countries with COVID-19 vaccination preparedness. The Gates Foundation, a private charitable organization dedicated to vaccine research and distribution, is donating US$250 million for research and public educational support, mainly in support of CEPI.

Several organizations have formed international alliances to expedite vaccine development : Nearly 159 vaccine candidates have been developed so far for testing ,

f which 10 are in clinical

evaluation and 121 are in Pre- clinical evaluation.

SLIDE 6

India continues to see sharp rise in COVID-19 cases; Recovery rate improves too

Source: WHO ; CEIC ; Data as of 3rd June 2020

Cases in India stands at 207,615 as on 3rd June2020 Testing in India continues to ramp up

India continues to see exponential rise in number of cases , despite lockdowns.
Testing now has increased to 0.14 million on a daily basis vs. an average of 0.07 million in April 2020.
Total number of confirmed cases in India stands at 207,615 as of June 3, 2020.
Even as the deaths have surpassed 5,000, the mortality rate in India continues to remain relatively low at 2.8%

compared with the global average (6%).

The recovery rate in India is increasing. As many as 91,855 patients have been recovered in India, taking the recovery

rate to 48%. (vs. 24.9 as of April end and 8.9% as of March end) (Source : WHO, CEIC)

SLIDE 7

Four states account for 70% of COVID-19 cases

Source: CEIC, *Data as of 27th May 2020

Maharashtra, Tamil Nadu, Gujarat and Delhi accounts for nearly 70% of the COVID-19 cases

SLIDE 8

GLOBAL ECONOMIC RESPONSES TO THE SITUATION

SLIDE 9

Global central banks have delivered sharp rate cuts

Source: Bloomberg, SBIMF Research; NB: * Indonesia had announced to use new policy benchmark i.e. 7-day reverse report rate as its benchmark policy rate in April 2016;

Host of global central banks reacted promptly by reducing rates in order to support growth

SLIDE 10

Other monetary measures undertaken by Global Central Banks

Source : IMF;

Focus areas of monetary stimulus rolled out by various countries :

Asset (securities) purchases Lowering of capital/reserve requirements Support bank lending to small and medium enterprises Temporary forbearance on classification of past due loans Broaden the eligible collateral for open market operations Long term refinancing

perations

Providing liquidity to mutual funds

SLIDE 11

Fiscal measures rolled out by various countries to contain the slowdown

Source: IMF, SBIMF Research ; *As of 21st May 2020

Fiscal stimulus come in the form of combination of guarantees, delayed payables and direct impulse, hence does not entail immediate spending in all cases

21.1 13.0 12.0 10.0 9.9 9.8 8.0 7.2 6.1 5.3 5.0 4.9 4.1 4.0 4.0 2.9 2.8 2.5 1.4 0.7 0.0 5.0 10.0 15.0 20.0 25.0 Japan Singapore United States South Africa Australia Canada Brazil United Kingdom India Turkey France Germany Indonesia European Union Argentina Russia Saudi Arabia China Italy Mexico

Fiscal stimulus as a % of GDP

SLIDE 12

Contours of fiscal stimulus rolled out by various countries

Source: IMF, SBIMF Research ; *As of 30th April 2020

Focus areas of fiscal stimulus rolled out by various countries :

Tax relief Business Loans/grants Healthcare Targeted industry support Loan guarantees Jobs retention schemes Public investment Unemployment Insurance Direct cash transfers

SLIDE 13

INDIA’S RESPONSE TO THE SITUATION

SLIDE 14

Govt of India’s response to COVID-19

Source:SBIMF Research

The government has decided to re-open the economy outside of containment zones in three phases and complete lockdown to still continue in containment zones till 30th June 2020.

No. of confirmed cases

Timeline of social distancing measures by the government

SLIDE 15

From lockdowns to Unlocking

Source: MHA ;SBIMF Research

Activities allowed (Outside of containment zones) Activities allowed in Containment zones From June 1 Phase 1 (from 8th June 2020) Phase 2 (in July 2020) Phase 3 (dates to be decided) Only essential services allowed Inter and intra state movement of persons and goods without e- pass Religious places Schools and colleges International air travel, metro rail services Movement of goods/cargo for cross land border trade Hotels, restaurants and other hospitality services Educational/training/c

aching institutions

Cinema halls, gyms, swimming pools, entertainment parks, theatres, bars, auditoriums, cinema halls Night curfew timings relaxed to 9 pm -5 am (from 7 pm - 7 am earlier) Shopping malls Social/political/sports/enterta inment/academic/cultural/reli gious functions

Government decides to relax the restrictions and re-open economic and social activities in a calibrated manner

Earlier classification of red, orange or green zones has been done away with. Now the whole country is divided into

containment zone and non-containment zone,

Containment zones will continue to see earlier imposed lockdown guidelines at least until 30th June 2018.
The perimeters of a containment zone are decided based on number of positive cases in area, contact tracing history

and population density.

States/UTs can prohibit certain activities based on their assessment of the situation and pose restrictions as deemed

necessary.

SLIDE 16

Fiscal response to COVID-19 by Government of India

Source: Ministry of Finance, SBIMF Research; * Liquidity injection of Rs 900 billion to DISCOMs via PFC and REC; NABARD to provide Rs 300 billion as refinance support to rural co-op banks & RRBs and Rs 1 trillion for funding Agri infra projects Rs 400 billion to be incurred by quasi sovereign agencies for MSME fund of funds.

Fiscal measures Total benefits (Rs billion) Fiscal cost in FY21 Fiscal cost as % of GDP Round 1 1,928 1,548 0.74 Round 2 - Tranche 1 5,946 940 0.45 Round 2 - Tranche 2 3,100 100 0.05 Round 2 - Tranche 3 1,500 240 0.11 Round 2- Tranche 4 81 81 0.04 Round 2- Tranche 5 400 400 0.19 RBI measures 8,016

Total

20,971 3,308 1.58

15 12 8 3 3 3 3 4 2 2 2 1 1 1 1 1 1 1 1 1 5 10 15 20

Rural poor and migrants Agriculture MSMEs Civil Aviation Corporate Affairs Health Tax measures EPFO Mining NBFCs/HFCs/MFIs Power Atomic Energy Contractors Defence Power discoms PSEs Real Estate Revenue loss Social Infrastructure State Government

No. of measures announced (Sector-wise)

17 15 11 12 4 4 3 5 10 15 20 Reform (entailing long term benefits) Executive Actions (entails no fiscal cost) Liquidity Support to various businesses/farmers Relief actions to Farmers/Business/w eaker sections Credit guarantee actions Compliance Relaxations Fiscal support (in terms of increased expenditure)

No. of measures announced

Relief measures for weaker sections of the society takes front seat Government unleashes key structural reforms, entailing long term benefits Government of India announced stimulus measures to the tune of Rs 20.97 trillion (~10% of GDP)

The measures announced contained a set of temporary

compliance relaxations to tide over COVID situation, liquidity support to businesses (primarily MSME, NBFC), relief measures to rural population and migrants, and certain executive and legislative reforms/actions with medium to long term structural benefits. Government has been swift to act and the follow-on steps with regards to certain measures (such as MSME credit guarantee, NBFC and banning of select defence goods imports).

Nearly 15 measures of the total 66 measures were

towards weaker section of society followed by agriculture (12) and MSMEs (8).

SLIDE 17

Fiscal burden from COVID-19 to be spread over multi-year period

Source: Ministry of Finance, SBIMF Research

While the package announced is for Rs. 20.97 trillion ,fiscal impact in FY21 is Rs. 3.3 trillion (1.6% of GDP, inclusive of

revenue forgone). Fiscal outlay over the next 3-4 years is estimated to be Rs. 1.27 trillion.

Another Rs.3.39 trillion worth of support comes in the form of credit guarantees which are essentially contingent liabilities

and may hit the government fiscal after 4 years. Rs. 8 trillion of liquidity support by RBI has also been included in this

package. And remaining support comes in the form of expenditure incurred by the quasi-government agencies (Rs. 2.9

trillion) and bank credit (Rs. 2 trillion). Thus , the fiscal burden from COVID has been spread over multi- year period. Measures Amount (Rs. billion) % GDP Cost borne by Government in FY21 2,731 1.3 Cost borne by Government in next 3-4 years 1,272 0.6 Credit Guarantee (hence contingent liability) 3,394 1.6 Cost incurred by Quasi sovereign agencies on behalf

f Government*

2,980 1.4 RBI support 8,016 3.8 Revenue Foregone 578 0.3 Bank credit 2,000 1.0 Total 20,970 10

Green shoots on reforms, but a miniscule fiscal cost in FY21

SLIDE 18

Details of Rs. 20.97 trillion packages –Round 1

Source: Ministry of Finance, SBIMF Research

Round 1 Amount (Rs billion) Free provision of food grains (rice, wheat and pulses) 393 Free cooking gas 137 MGNREGA wage hike 256 Ex-gratia transfer to vulnerable population 28.2 Ex-gratia transfer to JAM registered woman 300 EPF support 28 PM Kisan frontload payments 178 Construction workers' assistance 310 Usage of funds in district mineral fund for medical testing/screening/prevention of Covid-19. 71 Revenue loss due to tax concessions on advanced tax, TDS,TCS, STT etc 78 Emergency health response package 150 Total Benefits (Rs billion) 1,928 Fiscal cost in FY21 (Rs billion) 1,548 % of GDP 0.74

Round 1 was mainly targeted towards weaker sections of the society

SLIDE 19

Details of Rs. 20.97 trillion package- Round 2

Source: Ministry of Finance, SBIMF Research Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Emergency credit guarantee fund and subordinate debt assistance to MSMEs Special credit facility for street workers Financing facility by NABRAD for funding agriculture infrastructure projects Make in India for defence sector Increased allocation towards MGNREGA – Rs. 400 billion Funds of funds equity infusion for MSMEs ; E-market linkage for MSMEs ; Receivables of MSMEs to be cleared by Government in next 45 days Free food for migrant workers Scheme for formalization of micro food enterprises, PM Matsya Sampada Yojana scheme launched for fisheries Reforms for Airport sector , mining, power and space sector (mostly to do with privatization in these sectors) Health sector reforms that mandated all districts to have infectious diseases hospital blocks and integrated public health labs . Extended EPF support and reduction in EPF rates Housing credit subsidy for middle income Creation of Animal husbandry development infrastructure Efficient air space management to be allowed by easing restriction on utilization of Indian airspace Ease of doing business : Minimum threshold to initiate insolvency proceedings raised from 0.1 million to Rs. 10 million. Special liquidity window for NBFCs and Partial credit guarantee scheme for NBFCs National portability of ration cards and Credit facility to farmers through Kisan Credit Card Promotion of Herbal cultivation ,Bee keeping initiatives and Extension of

peration green to all fruits and

vegetables Investments towards Social sector infrastructure Decriminalisation of Companies Act defaults Liquidity injection to DISCOMs via quasi-sovereign entities Interest subvention for MUDRA-shishu loans Amendments to Essential Commodities Act Streamlining the public sector : by allowing only 4 PSUs per sector. Liquidity reduction via reduction in TDS and TCS and Extension of due dates for tax returns Special liquidity facility through NABARD to rural cooperative banks and Regional RBs. Agriculture marketing reforms ; Agricultural produce price and quality assurance Increased borrowing limit for state governments from 3% of GDP to 5% of GDP, linked to reform actions

SLIDE 20

Details of Rs. 20.97 trillion package- RBI support

Source: Ministry of Finance, SBIMF Research

RBI liquidity support Measures Amount (Rs. billion) Stimulus as % of GDP From Feb 2020 - till 27th March 2020 2,800 1.33 LTRO 1,250 0.59 USD-dollar swap 203 0.10 OMO purchases 925 0.44 SLF available to primary dealers 100 0.05 Others 322 0.15 Measures announced on 27th March 2020 3,740 1.78 TLTRO 1,000 0.48 CRR cut 1,370 0.65 Increased accommodation under MSF 1,370 0.65 Measures announced on 17th April 1,000 0.48 TLTRO 2.0 (for NBFCs) 500 0.24 Refinancing facility to NABARD, SIDBI, NHB 500 0.24 Measures announced on 27th April Special liquidity facility for MFs 500 0.24 Total monetary stimulus 8,040 3.83

RBI provided Rs. 8 trillion (of the total Rs. 20.97 trillion package announced by the Government)

SLIDE 21

RBI’s response to COVID-19: Sharp easing of monetary conditions

Source : RBI, SBIMF Research; *Data as of June 3, 2020.

RBI reduced the repo rate by another 40 bps to 4.0% in May 2020 CRR reduced from 4% to 3% in Apr 2020 for one year, applicable till Mar 2021

5 6 4 3 2 6 10 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18 May-19 May-20 CRR (%)

RBI has injected primary liquidity worth 3.8% of GDP*

SLIDE 22

Regulatory measures by the RBI in latest monetary policy

Source : RBI , SBIMF Research.

Moratorium on term loans and deferment of interest on working capital facilities extended for another three months (till 31st Aug 2020) Refinancing facility to SIDBI extended for another 3 months Extension of 3 months to meet 75% utilisation of investment limits norm under the VRR scheme for FII investors. Interest accumulated on term loan to be converted into funded interest term loan Increased group exposure limits for banks from 25% to 30%. Uptil June 2021 Withdrawal guidelines from State’s Consolidated Fund have been relaxed

Rs. 150 billion line of credit extended to EXIM bank for a period of 90

days from the date of availment Period for completion f outward remittances against normal imports into India extended from six months to twelve months. Enables the businesses to tide over the COVID-19 related issues To ease liquidity stress for SIDBI and FPIs To push repayment cycle on term loans by a couple of months To facilitate flow of resources to corporates This will entail a monetary support of

Rs. 130 billion, accounting for ~10% of

FY21 redemption for states Greater flexibility to importers to manage their operating cycles. To enable EXIM Bank to avail a US dollar swap facility to meet its foreign exchange requirements

SLIDE 23

Other monetary/regulatory measures by the RBI

Source : RBI , SBIMF Research.

Introduction of Target Long term repo operations (LTRO and TLTRO)
Increased borrowing under MSF
Moratorium on term loans for three months
Deferment of interest on Working capital facilities
Increase the WMA limits to 60% for all the states
Deferment of Net Stable Funding Ratio (NSFR) and Last tranche of Capital Conservation Buffer
Not necessary to activate countercyclical capital buffer for a period of one year
Permitting Banks to Deal in Offshore Non-Deliverable Rupee Derivative Markets
Special liquidity facility for mutual funds to the tune of Rs. 500 billion
Refinancing facility of NABARD, NHB, SIDBI to an extent of Rs. 500 billion
Reduction in cash reserve ratio to 3% from 4% earlier till March 2021
Reduced Liquidity coverage requirement for banks to 80% from 100% till 30th Sep 2020
Resolution period for stressed assets increased from existing 210 days to 300 days.
Restructuring of loans given by NBFCs to real estate allowed.
Regulatory benefits announced under the SLF-MF scheme to be extended to all banks, irrespective of whether

they avail funding from the RBO or deploy their own resources under this scheme.

RBI extend the timings for fixed rate Reverse repo and MSF window to provide greater flexibility to market

participants in their liquidity management

A host of unconventional measures have been announced by the RBI since February 2020

SLIDE 24

Global Economic Situation

SLIDE 25

IMF projects lower growth rate

Source :IMF

Global growth is projected to contract by 3% in 2020 vs. growth of 2.9% growth in the previous year

SLIDE 26

WTO projects sharp contraction in 2020 trade activity

Source : , WTO, CMIE Economic outlook , SBIMF Research.

India’s export growth could contract by between 4%-24% in FY21 World trade to contract by between 13%-32% in 2021

29 12

3

41 22

2

5

2
15

5 10 9

5
24
40
20

20 40 60 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 India's Exports (% y-o-y) Optimisitc scenario Pessimistic scenario 2.2

12.8

14.3 5.5 2.5 2.8 2.5 2.3 1.3 4.7 2.8

0.2
35
25
15
5

5 15 25 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Pessimistic scenario Optimistic scenario

32

24

World trade is expected to contract by 13% in 2020 under optimistic scenario and 32% in

ptimistic

scenario. India’s exports is expected to contract in FY21 by 4% under

ptimistic

scenario and 24% in pessimistic scenario

SLIDE 27

Some resumption in global economic activity

Global PMI inched upwards in May 2020, remained below March US unemployment claims declined to 2.1 million in May vs 3.8 million in Apr, but remined much above compared to March Germany Zew Economic Sentiment Index improves in May after declining by 49% in March 2020 World trade volumes declined by 3.5% in Mar 2020 vs. 0.8% growth in March 2019

;Source : Bloomberg ; World trade volumes as per CPB World trade monitor

SLIDE 28

Indian economic Activity

SLIDE 29

COVID-19 disruptions start to show in India’s Q4 GDP

Q4 GDP came in at 3.1% (lowest since the inception of new GDP series) Moderation in Q4 GDP was consumption led Trade activity has also contracted for three consecutive quarters

8.7 7.6 4.8 3.0 2 5 8 11

Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 Real GVA (% y-o-y) Real GDP (% y-o-y) 11.2 4.9 6.7 8.8 5.5 2.7

2

2 4 6 8 10 12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 Consumption (% growth)

4.9

8.9 15.2

5.8
10

10 20 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 Gross Capital Formation (% growth)

Gross capital formation contracted for three consecutive quarters

3.2 2.1

7.0
15
10
5

5 10 15 20 25 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Exports of goods and services Imports of goods and services

% y-o-y

SLIDE 30

Government spending and agriculture supported the overall growth

Government spending: A key driver of GDP growth Gap between nominal and real Agriculture GDP improved, bodes well for farm income Private sector output moderated significantly to 1.1% in March 2020

SLIDE 31

High frequency indicators weakened considerably in April

Source: CMIE economic outlook, SBIMF Research; NB: 1. Green denotes improvement in the growth and Pink indicates a

moderation. 2. We use some subjectivity in categorizing the data by looking at both the trends in the recent months as well as

trends relative to long term average. 3. We have shifted to steel consumption data from steel production data since Jan 2019. % growth Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 5 yr avg Consumption Domestic air traffic 10.5 1.9 1.5 9.8

32.9
99.9

13.0 Domestic sale of two-wheelers

14.3
16.6
16.1
19.8
39.8

na 2.5 Domestic sale of passenger Cars

10.8
8.4
8.1
8.8
53.3

na

0.9

IIP: Consumer durables production

1.4
5.6
3.8
5.8
33.1

na 1.1 IIP: Consumer non-durables production 1.1

3.2
0.3

1.5

16.2

na 5.3 International air traffic 4.0 2.0 0.2

3.4
56.2
99.1

4.0 Rural Domestic Tractor sales

12.8

4.0 3.3 19.6

50.2
80.1

4.9 Fertilizers production 13.6 10.2

0.1

2.9

11.9
4.5

2.1 Rural wage growth 3.1 3.2 3.8 na na na 4.6 Industrial Bank industrial credit 2.4 1.6 2.5 0.7 0.7 1.7 2.0 Cargo traffic - ports

1.5

5.6 2.4 4.1

4.0
21.1

3.6 Cargo traffic - rails 0.9 4.3 2.8 6.5

13.9
35.3

1.4 Consumption of Industrial Fuel 9.7 0.8 0.5 8.6

14.8
49.7

3.8 IIP: Manufacturing production 3.0

0.3

1.6 3.1

20.6

na 3.0 IIP: Mining production 1.9 5.7 4.3 9.7 0.0 na 3.2 Power generation

4.9

0.0 3.2 11.7

8.2
22.8

4.2 Total frieght activity 0.0 4.7 2.7 5.6

10.5
30.1

2.2 Export-Imports Merchandise exports

0.4
1.7
1.7

3.0

34.6
60.3

0.1 Services exports 7.9 11.6 7.0 6.9 1.2 na 6.9 Investments/Construction Bitumen consumption 18.2 1.6

9.7

3.8

35.9
71.7

5.7 Cement production 4.3 5.5 5.1 7.8

25.1
86.0

3.2 Domestic sale of commercial vehicles

15.0
12.3
14.0
32.9
88.1

na 6.2 IIP: Capital goods production

8.9
18.3
4.3
9.5
35.6

na 0.3 Imports of capital goods

4.1
4.2

8.4 35.1 na na 7.3 Steel consumption 6.7 9.2 4.1

6.5
29.2
87.3

4.0 Financial sector AUM of MFs 12.5 16.1 19.2 17.6

6.4
3.4

19.6 Real bank credit growth 7.2 3.4 3.0 4.8 5.5 na 8.3 Bank personal loans 16.4 15.9 16.9 17.0 15.0 12.1 16.9 Currency in circulation 12.8 11.9 11.9 11.5 14.5 15.7 12.5

SLIDE 32

Marginal recovery seen in May as lockdown conditions get relaxed

Source : CMIE Economic outlook ,Vahan, POSOCO, GSTN; SBIMF Research.; E-way bill data till 25th May 2020

Vehicle registerations seems to be picking up but still 79% lower (y-o-y) in May 2020 vs. May 2019

30.7 31.7 32.7 33.5 33.5 24.3 6.2 11.8 22.2 21.7 22.7 23.5 23.7 16.4 2.4 5.6 52.9 53.4 55.4 57.0 57.2 40.7 8.6 17.4

20 40 60 80

Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20

No. of E-Way bills generated per month (millions)

Intra-state Inter-state

E-way bill suggest pick up in goods transport activity May 2020

1.9 1.7 2.0 1.9 2.1 1.9 1.7 1.9 1.7 0.8 1.8 1.7 2.3 0.4 0.2

0.5

1.0 1.5 2.0 2.5 Jan Feb Mar Apr May

No. of vehicle registerations (in millions)

2018 2019 2020

Power consumption inched upwards with easing of lockdown restrictions

8.6

12.2

11.7

22.8
14.9
30.0
20.0
10.0

0.0 10.0 20.0 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Electricity generation (% y-o-y)

SLIDE 33

Google mobility trends too corroborate with improving activity in May

Source : Google Mobility report, SBIMF Research.

. Mobility trends in India

Essential goods sales continues to ramp up , as reflected in grocery and pharmacy related mobility.
Visits to and fro workplaces too is inching up with easing down of mobility restrictions by the government.
On the other hand, non-essential sales/activity remains relatively weak with retail and recreation mobility inching up
nly modestly

SLIDE 34

State-wise mobility trends show improvement but remains sporadic

Source: Google Mobility report, SBIMF Research.; States February March Pre lockdown (1st -23rd March) Lockdown 1.0 (24h Mar -17th Apr) Lockdown 2.0 (18th Apr-3th May) Lockdown 3.0 (4th May-17th May) Lockdown 4.0 (18th May-25th May) Maharashtra

2.6
17.9
81.5
87.3
82.9
80.3

Tamil Nadu

0.4
8.3
78.3
86.7
77.1
68.1

Gujarat

1.6
12.7
80.1
87.7
84.7
77.4

Karnataka 0.0

12.9
80.7
85.1
72.9
68.4

Uttar Pradesh 2.2

9.3
69.5
82.1
76.4
70.8

West Bengal

3.7
11.5
69.6
85.5
82.8
81.1

Rajasthan 1.9

13.1
74.0
82.0
76.6
70.1

Telangana 0.6

11.7
82.7
89.2
83.9
76.5

Andhra Pradesh

0.9
8.1
74.9
84.7
78.7
73.1

Kerala

3.9
19.6
77.8
85.0
77.1
68.4

Madhya Pradesh 0.9

12.1
75.0
83.7
78.6
75.1

States February March Pre lockdown (1st -23rd March) Lockdown 1.0 (24h Mar - 17th Apr) Lockdown 2.0 (18th Apr-3th May) Lockdown 3.0 (4th May-17th May) Lockdown 4.0 (18th May-25th May) Maharashtra

1.6
7.0
61.7
53.3
42.0
36.5

Tamil Nadu 0.1 2.2

55.8
48.8
25.1
12.4

Gujarat

0.7
5.1
65.1
56.3
49.1
31.0

Karnataka 0.9

1.1
56.8
45.9
19.9
16.1

Uttar Pradesh 4.5

1.7
55.4
36.7
20.9
8.0

West Bengal

0.7
3.4
54.8
42.7
31.8
34.9

Rajasthan 2.4

5.8
59.8
37.8
21.4
6.9

Telangana 2.3 0.4

56.9
50.5
33.8
21.8

Andhra Pradesh

1.0
0.4
54.6
43.9
28.4
18.5

Kerala

3.3
6.5
56.5
32.4
12.7

4.5 Madhya Pradesh 0.4

7.7
66.1
48.5
34.1
24.8

State-wise mobility tracker for retail and recreation State-wise mobility tracker for grocery and pharmacy

Although mobility data from Google corroborates some acceleration in activity in states , it is still below the pre-lockdown

levels (Feb and March 2020)

Among states, Kerala seems to be back on track with respect to mobility trends in grocery and pharmacy.

SLIDE 35

Source : CMIE, Economic outlook, SBIMF Research.; 6.7 8.4 23.8 24.0 24.3 23.6

5 10 15 20 25 30

15-Mar-20 20-Mar-20 25-Mar-20 30-Mar-20 04-Apr-20 09-Apr-20 14-Apr-20 19-Apr-20 24-Apr-20 29-Apr-20 04-May-20 09-May-20 14-May-20 19-May-20 24-May-20 29-May-20 Unemployment rate (%)

Unemployment levels continue to remain above pre- lockdown levels of 6% PMI manufacturing and services, although improved in May 2020, still reflects weakness in the economic activity

Activity will take time to return to pre-COVID levels

57.5 5.4 12.6 27.4 30.8 2 17 32 47 62 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 PMI Services PMI Manufacturing

SLIDE 36

Few more roadblocks that can be deterrent to economic activity

Source: SBIMF Research

Likelihood of rise in number of COVID-19 cases with higher number of migrants returning to their respective states Locust Attack – Damage to standing crops Cyclone Amphan – Damage to infrastructure, crops & livelihood

SLIDE 37

COVID-19 disruptions to lead to significant economic shock

Source: CMIE Economic outlook , SBIMF Research.

Indian economic growth could further moderate in FY21

We expect India’s growth to moderate significantly in FY21 from 4.2%

growth in FY20.

Lockdown spread over March/April results in output loss of ~5.7% of the

total annual output. The limited human contact required to contain the spread of the virus is hindering economic activity. Given elevated infection rates, the public fear may result in below-normal activity for a few more months. Even if demand for durable goods picks up, consumption of services may stay weak.

As corporate profits are squeezed (weakening operating leverage) they

are likely to delay capex plans, lower salaries and cut jobs, which in turn will weaken consumption demand. As corporates struggle, banking sector GNPAs are likely to deteriorate.

Other factors that will weigh on growth are a) increased risks of a global

recession, b) grim domestic employment situation for nearly a decade, c) high leverage in government and household balance-sheet, d) weakness in financial sector health and e) erosion of wealth due equity price fall.

On positive side, as per RBI estimates, the impact of the 10% fall in

crude oil price is expected to increase growth by 15 bps. But it is contingent on benefits being passed on and leading to higher demand.

The agriculture sector and government spending will be crucial for

supporting economic activity in FY21.

Both government and RBI policy support in terms of fiscal spending, rate

cuts and regulatory actions will have to continue. They will need to on standby to step in with regulatory and liquidity measures in case of any early signs of financial sector dislocations. The projections of growth and inflation for FY21 would be heavily contingent on the intensity , spread and duration of COVID-19

8.8 3.8 4.8 3.8 7.9 7.9 7.9 8.1 7.7 3.1 7.9 8.5 5.2 5.5 6.4 7.4 8.0 8.3 7.0 6.1 4.2 3 6 9 12 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Real GDP growth (in %)

Several economists are now expecting FY21 growth to be between -2% to -12%.

SLIDE 38

EQUITY MARKET

SLIDE 39

Global equity market snapshot : May 2020

Source: Bloomberg, SBIMF Research

Performance in May 2020 (local currency returns) Performance Year-to-Date (local currency returns) Performance in May 2020 (US$ returns) Performance Year-to-Date (US$ returns)

7
3
2
1

1 1 2 3 3 4 4 5 6 7 8 8 9

10
5

5 10 HANG SENG INDIA NIFTY MSCI India PAKISTAN TAIWAN CHINA MSCI EM INDONESIA PHILIPPINES FRANCE UK KOREA DOW JONES S&P 500 SRI LANKA GERMANY MSCI EM - EUROPE JAPAN BRAZIL

% m-o-m (local currency terms)

25 -25 -25 -24
21 -21 -21 -19 -19 -18 -17 -17
13 -11
9
8
8
6
6
30
15

PHILIPPINES MSCI EM - EUROPE INDONESIA BRAZIL FRANCE INDIA NIFTY SRI LANKA UK HANG SENG MSCI India PAKISTAN MSCI EM GERMANY DOW JONES TAIWAN KOREA JAPAN CHINA S&P 500

% YTD (local currency terms)

44
29 -26 -25 -25 -25 -23 -23 -22 -21 -18 -17 -14 -13 -11 -9
9
7
6
50
40
30
20
10

BRAZIL INDONESIA INDIA NIFTY UK PHILIPPINES MSCI EM - EUROPE SRI LANKA MSCI India FRANCE PAKISTAN HANG SENG MSCI EM KOREA GERMANY DOW JONES TAIWAN CHINA JAPAN S&P 500

% YTD (US$ returns)

7
3
3
2
1
1

1 1 2 2 3 4 4 5 7 7 8 8 9

10
5

5 10 15 HANG SENG INDIA NIFTY MSCI India PAKISTAN TAIWAN CHINA MSCI EM UK KOREA PHILIPPINES INDONESIA FRANCE DOW JONES S&P 500 SRI LANKA JAPAN MSCI EM - EUROPE GERMANY BRAZIL

% m-o-m (US$ returns)

SLIDE 40

Source: Bloomberg, SBIMF Research

Indian equity market snapshot : May 2020

Performance Year-to-Date (local currency returns) Performance in May 2020 (local currency returns)

Nifty and Sensex were down by 3% and 4% respectively on a monthly basis. Banking stocks witnessed the highest decline

(10%) followed by consumer durables (8%). Telecom sector delivered the highest positive returns (11%) followed by auto (6%)

Performance across the capitalization curve was also similar with mid cap and small cap delivering 1% and 2% m-o-m

negative returns respectively.

On YTD basis, Nifty and Sensex were down by 21% each. On sectoral basis, all sectors (barring healthcare and telecom)

delivered negative YTD returns.

Concerns around growth erosion due to continued prevalence of COVID-19 weighed on markets.
10 -8 -6 -4 -3 -3 -3 -3 -2 -2 -2 -1 -1 -1

1 1 1 2 6 11

20
10

10 20 BANKEX CONSUMER DURABLES PSU SENSEX NIFTY REAL ESTATE LARGE CAP BSE 100 BSE 500 OIL & GAS SMALL CAP MID CAP IT POWER METALS FMCG CAP GOODS HEALTHCARE AUTO TELECOM

% m-o-m

40 -38 -35 -35
27 -24 -24 -23 -21 -21 -21 -21 -21 -21 -20 -20
9
4

13 17

50
40
30
20
10

10 20 BANKEX REAL ESTATE PSU METALS CAP GOODS CONSUMER DURABLES AUTO POWER SENSEX NIFTY LARGE CAP MID CAP BSE 500 BSE 100 SMALL CAP OIL & GAS IT FMCG TELECOM HEALTHCARE

% Year-to-Date

SLIDE 41

NIFTY 4Q FY20 Earnings: Mid-Season Review

Source: Capitaline, Bloomberg, SBIMF Research

30 of the 50 NIFTY companies had reported results as of

4 June 2020

Nifty PAT growth for 4QFY20 has been -20% y-o-y, with a

very weak breadth (miss to beat ratio at 3:1)

Among

key sectors which have done worse than expectations is financials led by asset quality deterioration in the MSME, CV, Unsecured Retail and MFI

portfolios. Overall demand commentary is weak with

uncertainty around size and timing of recovery. However, pent up demand in rural India can surprise- tractor companies that strong procurement and good monsoons buoy rural sentiments.

Labor shortages and movement restrictions are emerging

as issues in select pockets, like infra and metals, although larger companies seemed to have managed it better.

Downgrades continue at a very sharp pace. Market

expectations for Nifty earnings have been cut by 25% y-

-y for both FY21 and FY22. Key sector to track would be

financials where earnings downgrade risks are higher. Considerable moderation in Q4 FY20 top-line and PAT

SLIDE 42

Earnings will be revised lower for yet another year

Source: Bloomberg, SBIMF Research

9.4
7.6
8.1
4.4
21.8
16.8
9.7
12.6
11.0
25
20
15
10
5

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Earnings upgrade downgrade- % chg

There could be material downward revision to earnings as growth and demand gets impaired due to COVID-19

Downgrade in NIFTY earnings during the fiscal year

SLIDE 43

Valuations gained some attractiveness back in May 2020

Source: Bloomberg, CMIE Economic outlook , SBIMF Research

Nifty 12M trailing PE ratio declined to 22.2 in May’20 vs. 22.9 in Apr’20 Nifty 12M trailing PB ratio is at 2.5 in May’20 vs. 2.6 in Apr’20 Market capitalization/GDP (%) declined in May but remained above March India earnings yield look attractive vs. Government Bonds

10 15 20 25 30 35 Nov-02 Sep-03 Jul-04 May-05 Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13 Jul-14 May-15 Mar-16 Jan-17 Nov-17 Sep-18 Jul-19 May-20 NIFTY 12M Traling PE Ratio

Mean +1 SD

1 SD

2 4 6 8 10 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Dec-19 May-20 India 10 year Gsec yield (in %) India earnings yield (%) - 12 M trailing 1 2 3 4 5 6 Nov-02 Sep-03 Jul-04 May-05 Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13 Jul-14 May-15 Mar-16 Jan-17 Nov-17 Sep-18 Jul-19 May-20 NIFTY 12M Traling PB Ratio

Mean +1 SD

1 SD

Nifty 12M trailing PE ratio declined to 22.2 in May’20 vs. 22.9 in Apr’20

SLIDE 44

Liquidity : FIIs turned buyers of Indian equities in May 2020

Source: Bloomberg, SBIMF Research

FIIs purchased US $1.72 billion in May 2020 billion vs.

utflows of US $0.03 billion in April

DIIs sold US$ 0.13 billion in May 2020 vs. US$ 0.11 billion in April Mutual Fund sold US$ 0.26 billion in May vs. US$ 1.05 billion in April 2020

10
5

5 10 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20

FII Investment - Equity (US$ billion)

2
1

1 2 3 4 5 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20

Net Domestic MF Investment (US$ billion)

4
2

2 4 6 8 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

Net DII Investment (US$ billion)

SLIDE 45

SIP inflows to mutual fund industry broadly resilient

Source:AMFI, SBIMF Research

Monthly SIP inflows declined marginally in April, but broadly resilient

SLIDE 46

Equity Outlook

Source:Bloomberg, SBIMF Research 10 15 20 25 30 35 Nov-02 Sep-03 Jul-04 May-05 Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13 Jul-14 May-15 Mar-16 Jan-17 Nov-17 Sep-18 Jul-19 May-20 NIFTY 12M Traling PE Ratio

Mean +1 SD

1 SD

Nifty 12M trailing PE ratio at 22.2 in May’20

vs. 22.9 in Apr’20

Nifty fell 3% in May 2020 turning out to be a relative EM under-performer during the month. The under-performance was perhaps led by rising number of COVID cases, concerns on financial sector and lesser than expected demand support in the latest fiscal announcement. That said, recent signs of the economy opening up have led to a rally for Indian equities over last 10 days helping reverse some

f the underperformance.

Banking stocks witnessed the highest decline (10%) followed by consumer durables (8%). Telecom sector delivered the highest positive returns (11%) followed by auto (6%). Performance across the capitalization curve was also similar with mid cap and small cap delivering 1% and 2% m-o-m negative returns

respectively. On YTD basis, Nifty and Sensex were down by 21%.

COVID-19 is expected to have an adverse impact on the economy and corporate

earnings. Results of 4QFY20 earnings season and management commentaries

suggest more volatility and disruption in earnings ahead with several Nifty companies seeing fresh double-digit EPS cuts for FY21 Lockdown norms have been relaxed in June. But, economic recovery will be slow given the sharp income loss in last two months. Labor availability could be a significant challenge, and limited demand support from government will keep the overall growth prospects weak. The government announced a slew of stimulus and reform measures in a bid to seize the crisis as an opportunity and fight for a position of strength in the changed world order. Overall, it prioritized structural supply side reform over near-term demand boost. On the positive side, significant monetary policy support, government’s measures to protect rural economy and agri-income will be a positive support to the growth. Implications: As outlook for forward earnings stays uncertain, we stay bottom-up in our approach by focusing on resilient businesses that should emerge stronger on the other side.

SLIDE 47

FIXED INCOME MARKET

SLIDE 48

Global Bond Snapshot: May 2020

Source: Bloomberg, SBIMF Research

10 Year Gsec Yield (% mth end) 2017 end 2018 end 2019 end Jan-20 Feb-20 Mar-20 Apr-20 May-20 m-o-m (in bps) YTD change (in bps) Developed market US 2.41 2.68 1.92 1.51 1.15 0.67 0.64 0.65 1

126

Germany 0.43 0.24

0.19
0.43
0.61
0.47
0.59
0.45

14

26

Italy 2.02 2.74 1.41 0.94 1.10 1.52 1.76 1.48

29

6 Japan 0.05 0.00

0.01
0.07
0.15

0.02

0.03

0.01 4 2 Spain 1.57 1.42 0.47 0.24 0.28 0.68 0.72 0.56

16

9 Switzerland

0.15
0.25
0.47
0.73
0.82
0.33
0.52
0.46

6 1 UK 1.19 1.28 0.82 0.52 0.44 0.36 0.23 0.18

5
64
Bond yields across countries presented mixed picture on m-o-m with yields increasing in the US , Japan and Germany on

m-o-m basis while declining in Italy, Japan and Spain.

Increased concerns of higher government borrowings to finance COVID-19 packages along with rebound in stock

markets exerted upward pressure on yields on a monthly basis.

On Year-to-Date basis, bond yields continue to remain low.
10-year US Treasury yields have fallen by 126 bps on YTD basis. Increased safe- haven assets buying by investors on

account of growth concerns and ultra-loose monetary policy amidst coronavirus scare helped the rally in US yields..

SLIDE 49

US bond yields at historic lows

Source : Bloomberg, SBIMF Research.

US 10 Year at historic low and 30 year inched marginally upwards

1 2 3 4 5 6 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Dec-19 May-20 US 10 year Gsec yield (%) US 30 year Gsec yield (%)

SLIDE 50

Emerging Market Bond yields: Snapshot for May 2020

Source: Bloomberg, SBIMF Research

10 Year Gsec Yield (% mth end) 2017 end 2018 end 2019 end Jan-20 Feb-20 Mar-20 Apr-20 May-20 m-o-m (in bps) YTD change (in bps) Emerging Market China 3.90 3.31 3.14 3.00 2.73 2.59 2.52 2.69 18

45

India 7.33 7.37 6.56 6.60 6.37 6.14 6.11 5.76

35
79

Indonesia 6.29 7.98 7.04 6.65 6.91 7.85 7.83 7.30

53

26 South Korea 2.47 1.96 1.67 1.56 1.33 1.55 1.52 1.37

15
31

Malaysia 3.91 4.08 3.31 3.13 2.83 3.36 2.87 2.81

6
51

Russia 7.49 8.70 6.36 6.27 6.48 6.75 6.12 5.55

57
81

Thailand 2.32 2.48 1.48 1.29 1.06 1.40 1.14 1.15

33

Turkey 11.67 16.42 12.21 10.23 13.00 13.55 11.69 13.21 152 100 Mexico 7.66 8.66 6.91 6.63 6.87 7.12 6.61 6.16

45
76

Poland 3.30 2.83 2.12 2.14 1.79 1.68 1.46 1.18

28
94

South Africa 8.72 8.72 9.03 8.98 9.12 11.00 10.30 8.93

137
10

Colombia 6.48 6.75 6.34 5.95 5.80 8.42 7.09 6.06

103
28

Hungary 2.02 3.01 2.01 2.07 2.17 2.65 1.95 1.91

4
10
Bond yields rallied in most of the emerging economies on YTD basis barring Indonesia and Turkey.
Aggressive rate cuts by central banks to help stem the fallout from the pandemic helped the rally in yields across

countries.

SLIDE 51

Movements in EM FII portfolio

Source: Bloomberg; SBIMF Research;

India witnessed highest amount of debt outflows compared with the other key economies on YTD basis

SLIDE 52

Commodity prices fall on the fear of low demand

Source : Bloomberg, SBIMF Research.

54
51
50
46
46
21
21
20
19
17
17
15
14
14
13
12
12
11
11
6
5

1 8 16 33

60
45
30
15

15 30 45 Gas Oil Heating Oil WTI Gasoline Brent Sugar Coffee Coal Corn Cotton Aluminium Copper Lead Platinum Natural Gas Nickel Zinc Soybeans Tin Wheat Silver Palladium Iron Ore Gold Uranium Average commodity prices (% YTD change)

SLIDE 53

Increase in safe haven demand led to rise in gold prices

Source : Bloomberg, SBIMF Research.

SLIDE 54

India Rates Snapshot: May 2020

Source: Bloomberg, PPAC, RBI, CEIC, SBIMF Research; NB: **Crude oil price is average $/barrel for the month, rest of the data are % month end; *Corporate bond rate is for AAA rated bonds ,*** Refers to PSU Banks’ CD rate; ^ INR and Oil price changes are % change;

Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 m-o-m change (in bps) YTD change (in bps) 1 Yr T-Bill 5.11 5.30 5.29 5.16 4.94 3.70 3.41

29
189

3M T-Bill 4.88 5.03 5.13 5.08 4.36 3.64 3.19

45
183

10 year GSec 6.47 6.56 6.60 6.37 6.14 6.11 5.76

35
79

3M CD*** 5.33 5.08 5.38 5.40 4.83 4.43 3.38

105
170

12M CD*** 5.68 5.98 5.98 5.73 5.48 5.23 4.28

95
170

3 Yr Corp Bond* 6.65 6.95 6.83 6.34 6.54 6.41 6.07

35
88

5 Yr Corp Bond* 7.14 7.17 7.15 6.80 7.02 6.83 6.38

46
79

10 Yr Corp Bond* 7.74 7.63 7.83 7.43 7.51 7.47 7.28

19
34

1 Yr IRS 5.01 5.34 5.26 4.97 4.30 3.80 3.76

4
158

5 Yr IRS 5.09 5.54 5.42 5.02 4.73 4.27 4.21

6
133

Overnight MIBOR Rate 5.25 5.26 5.05 5.09 4.81 4.41 4.04

37
122

INR/USD 71.74 71.38 71.36 72.18 75.63 75.10 75.62

1^

1^ Crude Oil Indian Basket** 62.53 65.50 64.31 54.63 33.36 19.90 20.90 5^

68^
Indian G-sec market has been declined by 35 bps to 5.76% in May 2020 vs. 6.11% in the previous month. Benign crude oil

prices, risk of lower growth and continued monetary easing by RBI via unconventional measures aided the fall in yields. However, concerns surrounding the likely fiscal slippages to combat the impact of COVID-19 and FPI outflows(in debt segment) limited the fall. New 10-year benchmark paper was also introduced with 5.79% coupon on May 11, 2020.

Crude oil prices for the Indian basket rose by 5% to US$ 20.90/bbl in May 2020. Improved demand following easing of

lockdown restrictions along with production cuts by the OPEC supported the rise in crude oil prices.

Rupee weakened by 1% against the US dollar on m-o-m basis and reached 75.62/US$ in May 2020. Concerns over global

recession have led to investors rushing towards safe haven assets, thus leading to FII outflows from India (in the debt segment) and rupee depreciation.

SLIDE 55

India GSec yield curve has steepened in May 2020

Source : Bloomberg, SBIMF Research. 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00 3 Month 6 month 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 15 Year 30 Year 01-Jan-19 01-Jan-20 28-Mar-20 28-Apr-20 29-May-20

Surplus liquidity in banking system is leading to sharper rally in shorter end of the curve while longer end is pricing some bit of fiscal concerns

SLIDE 56

SDL and Corporate bond yields rallied in May aided by liquidity

Source: Bloomberg, SBIFM Research

Spread of 10-year Corp Bonds vs. G-sec : 152 bps lower than the average of 237 bps during 2008 crisis Spread of 10-year SDL vs. G-sec : 85 bps in May vs. 105 bps in April

20 100 180 260 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Aug-18 Mar-19 Oct-19 May-20 10 year Corp Bond minus G-sec (in bps) LTA since 2002 10 year avg. 20 40 60 80 100 120 140 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 May-20 10 year SDL minus G-sec (in bps) 10 year avg.

LTA since 2006: 59 bps 10 year avg. 58 bps 5 year avg. 61 bps

SLIDE 57

COVID-19 disruptions to lead to significant economic shock

Source: CMIE Economic outlook , SBIMF Research.

Indian economic growth could further moderate in FY21

We expect India’s growth to moderate significantly in FY21 from 4.2%

growth in FY20.

Lockdown spread over March/April results in output loss of ~5.7% of the

total annual output. The limited human contact required to contain the spread of the virus is hindering economic activity. Given elevated infection rates, the public fear may result in below-normal activity for a few more months. Even if demand for durable goods picks up, consumption of services may stay weak.

As corporate profits are squeezed (weakening operating leverage) they

are likely to delay capex plans, lower salaries and cut jobs, which in turn will weaken consumption demand. As corporates struggle, banking sector GNPAs are likely to deteriorate.

Other factors that will weigh on growth are a) increased risks of a global

recession, b) grim domestic employment situation for nearly a decade, c) high leverage in government and household balance-sheet, d) weakness in financial sector health and e) erosion of wealth due equity price fall.

On positive side, as per RBI estimates, the impact of the 10% fall in

crude oil price is expected to increase growth by 15 bps. But it is contingent on benefits being passed on and leading to higher demand.

The agriculture sector and government spending will be crucial for

supporting economic activity in FY21.

Both government and RBI policy support in terms of fiscal spending, rate

cuts and regulatory actions will have to continue. They will need to on standby to step in with regulatory and liquidity measures in case of any early signs of financial sector dislocations. The projections of growth and inflation for FY21 would be heavily contingent on the intensity , spread and duration of COVID-19

8.8 3.8 4.8 3.8 7.9 7.9 7.9 8.1 7.7 3.1 7.9 8.5 5.2 5.5 6.4 7.4 8.0 8.3 7.0 6.1 4.2 3 6 9 12 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Real GDP growth (in %)

Several economists are now expecting FY21 growth to be between -2% to -12%.

SLIDE 58

India inflation to moderate in coming months

Source: CMIE, Dept of consumer affairs, SBIMF Research;

Inflation seen in essential commodities CPI inflation may moderate- but uncertainty ahead While inflation is broadly expected to moderate in coming months, there are both push and pull factors which will be at play.

Income erosion may lead to demand erosion and hence

inflation may fall

Crude price- an essential input is falling will lead to

reduced cost pressures for some businesses

But shortage of labor and lost revenue may adversely

impact margin, providing an impulse to raise the cost of final output

Wage inflation may be for real and hence can feed into

inflation

Aggressive procurement by governments may bring

upward movement in food prices

Hence, uncertainty in inflation.
Biggest uncertainty: Data collection given the lack of

mobility

But from policy perspective, growth concern should
ver-power inflation concern

2 4 6 8 10 12 14 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 CPI % y-o-y

CPI target range 4% + 2%

Forecast

31
2 -1

2 3 4 5 5 5 7 7 7 8 8 9 9 10 11 16 17 21

40
30
20
10

10 20 30 Onion Tea loose Milk Tomato Sugar Palm oil Wheat Mustard oil Gram dal Salt pack Soya oil Gur Atta Vanaspati Rice Sunflower oil Tur/Arhar dal Groundnut oil Urad dal Moong dal Masoor dal Potato % change in prices since lockdown (22nd Mar-1st June)

SLIDE 59

Muted rise in Kharif MSP : No material impact on inflation

40.4 3.0 3.1 4.2 13.9 29.6 8.4 8.9 10.1 22.6 5.7 2.2 4.1 6.0 6.4 13.8 3.1 3.4

5

10 15 20 25 30 35 40 FY04 FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20

CPI Weighted Avg Kharif- % y-o-y 3 4 5 6 7 8 9 10 11 12 13 2 4 6 8 10 12 14 16 18 20 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Weighted Avg MSP hike- % y-o-y Avg CPI Inflation % y-o-y: RHS

CPI weighted kharif price rise in 2020-21 comes to 3.4% MSP price hike and CPI has decoupled since FY16

Government has released the 2020-2021 minimum support price (MSP) for the Kharif crops. The price rise were muted and

ranged between 2-12% across 14 Kharif products. In simple average terms , Kharif MSP were hiked by 4.7% in FY21 (vs. 4% in FY20.. Kharif MSP related crops have 7.7% pt. weight in CPI basket. Weighted for CPI, the MSP hike comes to 3.4% vs. 3.1 in FY19

During 2018 budget, government had announced to re-calibrate MSP calculation as 50% higher than cost of production. As a

result, we saw a sharp jump in MSP prices in FY19 (24%). This year also, government has kept the MSP at 50% more than the cost of production barring 7 products (Bajra, arhar, urad, cotton,maize, jowar and paddy) where MSP has been fixed at more than 50% of cost of production, thereby hoping to increase the profitability for farmers.

We do not see an impact on CPI.
MSP price hike and CPI inflation has decoupled since FY16. MSP hikes had averaged around 7% between FY16 to FY18 (both

Rabi and Kharif weighted for the share in CPI basket). On the other hand, CPI had moderated and averaged around 4% over the last four years. In fact, food CPI fell to as low as 0.1% last year despite such high MSP hikes last year. This is primarily because, except for cereals (and there too paddy and wheat) , prices of other products are dictated by demand supply

dynamics. Government procurement in rest of the items are miniscule.

Source: PIB; SBIMF Research

SLIDE 60

Policy rate Outlook

Source :Bloomberg; SBIMF Research.

RBI reduced repo rate by another 40 bps to 4% in May 2020

6.00 6.50 5.15 4.00 3 5 7 9

Mar-11 Jan-12 Nov-12 Sep-13 Jul-14 May-15 Mar-16 Jan-17 Nov-17 Sep-18 Jul-19 May-20

COVID-19 health crisis led to the second instance of monetary policy committee (MPC) meeting being forwarded to at an early date. MPC lowered the repo rate by 40bps to 4.00%. Consequently, the reverse repo rate and MSF rate stands reduced to 3.35% and 4.35% respectively. Cumulatively, the central bank has delivered 250bps of Repo rate cuts and 265bps of Reverse Repo cut in the current monetary easing cycle (i.e. since February 2019). The policy rate stands at historic lows for India. The central bank is clearly worried about growth. It expects the prices to stay elevated for a couple of months but eventually fall below 4% by 2H FY21. That said, as we have been pointing out, growth considerations are likely to supersede any concerns on inflation and monetary conditions are likely to stay accommodative for long As the financial system challenges amidst COVID-19 continue, some of the earlier announced regulatory relaxations has been extended for another three

months. Fresh set of regulatory relaxations were also announced.

While some of the widely anticipated measures such as MTM relaxations on excess SLR investments by banks, OMO calendar and one-time restructuring

f bank loans have not been announced as yet, the policy actions by the

central bank reaffirm our faith that the central bank will stand to support the financial system in all possible ways. With the number of COVID-19 cases continuing to rise in India despite two months of lockdown, and economic activity plunging to the sharpest order, the pain points to Indian financial system is bound to continue for some time. To that extent, RBI should likely pause for next couple of policy meet to keep its powder dry.

SLIDE 61

Currency: Indian rupee show relatively contained depreciation

Source: Bloomberg, SBIMF Research

Rupee performance in the middle among EM DXY and Yen has appreciated Rupee depreciated marginally to Rs 75.6/$ in May 2020 vs. Rs 75.1/$ in April 2020

68.8 71.4 71.4 75.1 75.6 65 67 69 71 73 75 77 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Rupees per US dollar

24.6
20.2
14.7
12.8
11.9
11.7
6.6
6.6
5.9
5.6
5.4
5.3
5.1
2.4
0.1

0.1 0.7

30
25
20
15
10
5

5 Brazil Real African Rand Mexican Peso Turkey Lira Colombian Peso Russian Rouble Thai Baht Korean Won Malaysian Ringitt Indian Rupee Hungarian Forint Polish Zloty Indonesian Rupiah Chinese renminbi Taiwanese Dollar Philippine Peso Japan Yen

% YTD change

6.9
5.0
1.0

0.7 2.0

10.0
5.0

0.0 5.0 British Pound Australian Dollar Euro Japanese Yen DXY Index

% YTD change

SLIDE 62

Outlook on Rupee

Source : RBI , CMIE economic outlook, SBIMF Research; *uptil 22nd May 2020

Favourable factors Risk

Crude oil price crash and

strong Forex reserves to work in favour of rupee

The coordinated global

policy easing may stem the portfolio outflows but may take a while for risk appetite to fully recover.

US $ and other safe haven

currencies to maintain its appreciation bias , that can weigh on Indian currency

Rupee likely to come under

pressure if number of new virus cases sharply rise in India

r policymakers undelivered and

growth is impacted

Rupee is likely to maintain a depreciation bias in the near-term. Global and local policy action, number of COVID-19 cases in India and its impact on growth will determine the near-term trajectory

Foreign Exchange reserves at an all time high

SLIDE 63

Surplus banking system liquidity aided the fall in money market rates

Source: CEIC, SBIMF Research ; Data up to 29th May 2020

2 4 6 8

Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Call money: Weighted average rate (%) Triparty repo: Weighted average rate (%) Market Repo: Weighted Avg Rate (%)

Which in turn resulted in better transmission of rate cuts in overnight segment Repo rate reduced by another 40 bps in May 2020 to 4%.. Transmission of rate cuts in money market segment since Feb 2019

6,000
5,000
4,000
3,000
2,000
1,000

1,000 2,000

Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20

Average monthly banking system liquidity - Rs billion (+ve is deficit, -ve is surplus)

Net Borrowing of Banks from the RBI adjusted for surplus cash

..that helped in increased banking surplus liquidity..

6.5 5.15 4.4 4 4.9 4 3.35 3 5 7 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Repo rate(%) Reverse repo rate (%)

% Jan-19 May-20 Change (in bps) Repo rate 6.50 4.00

250

Reverse repo 6.25 3.35

290

Call money 6.35 3.74

261

Triparty repo 6.39 3.00

339

Market repo 6.41 2.91

350

SLIDE 64

Bank deposit and lending rates seeing gradual transmission

Source: CEIC, SBIMF Research; Data up to May 29, 2020 ; *Data uptil March 2020

Transmission of rate cuts in lending and deposit rates

% Jan-19 May-20 Change (in bps) Repo rate 6.50 4.00

250

Reverse repo 6.25 3.35

290

WALR (fresh loans) 9.81 8.80*

101

MCLR (1 year) 8.80 7.50

130

Saving deposits rate 3.50 2.75

75

Term deposit rate 6.88 5.81

107

3.5 3.3 2.8 6.9 6.6 5.8 2.0 4.0 6.0 8.0 10.0 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Saving deposits rate (%) Term Deposit rate > 1 year (%) 8.8 8.4 8.2 9.7 10.0 9.7 7.0 8.0 9.0 10.0 11.0 12.0 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 MCLR (1 year) -% WALR on fresh loans (%)

Savings & term deposit rate declined by 75 and 107 bps respectively vs. 250 bps decline in repo rate since Feb 2019 MCLR & WALR declined by 130 and 101 bps respectively

vs. 250 bps decline in repo rate since Feb 2019

SLIDE 65

Source: CMIE, Economic Outlook ; SBI MF Research

FY20 Fiscal deficit stood at 4.6% vs. 3.8% (RE)

Fiscal deficit for FY20 stood at 4.6% of GDP vs. 3.3% BE and 3.8% RE. This was mainly due to lower tax collections and

disinvestment proceeds as well as government's commitment to continue with its revised expenditure in absolute terms.

There was a broad based shortfall in the tax segment.
Contrary to everyone’s expectation, expenditure grew by 16% in FY20. Both revenue and capital spending grew.
Lower than budgeted spending was seen in Agriculture, PDS, and Roads. Expenditure was met for defence, railways, health,

education, housing etc. Marginally higher spend was seen in rural development. States were transferred 32.4% of the gross tax revenue.

Rs.1.7 trillion of higher fiscal deficit was funded primarily by higher short-term borrowings (Rs.600 billion) and drawdown of

cash balances.

SLIDE 66

Consolidated fiscal deficit likely to reach +10% of GDP in FY21

Source: RBI, SBIMF Research; Central government borrowings based on revised borrowing calendar .SLR = Statutory Liquidity Ratio

Combined fiscal deficit estimated to be 10% in FY21 vs. likely 7.5% in FY20 Near doubling of Government Bond supply in FY21 RBI will have to the heavy lifting in funding the government’s fiscal deficit

Case 1: 26% SLR Case 2: 27% SLR Case 3: 28% SLR in Rs. billion FY19 FY20E FY21E FY21E FY21 E Demand Sources

1. Banks

968 3,144 3,550 5,100 6,655

2. Insurance Companies

2,282 2,900 1,900 1,900 1,900

3. Provident/Pension/ Gratuity

1,364 1,400 1,400 1,400 1,400

4. RBI's Net OMO

2,556 1,137 10,250 8,700 7,145

5. Others

167 795 1,000 1,000 1,000

A. TOTAL DEMAND

7,337 9,376 18,100 18,100 18,100 Supply Sources Central Govt Sec (net of redemptions) 3,853 4,740 9,600 9,600 9,600 State Govt Securities (net of redemptions) 3,484 4,636 8,500 8,500 8,501

B. TOTAL SUPPLY

7,337 9,376 18,100 18,100 18,100

6.6 4.6 4.4 3.7 3.8 4.9 3.9 4.7 9.6 1.5 1.6 2.1 3.6 4.6 3.4 3.5 4.6 8.5

5

10 15 20

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E State Govt Borrowings (net of redemptions) Central Govt Borrowings (net of redemptions)

in Rs. trillion

8.2 6.3 6.6 7.3 8.4 8.3 7.3 9.4 18.1 6.9 6.7 6.7 6.9 6.9 6.4 5.8 7.5 10 0.0 4.0 8.0 12.0

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 E FY21 E Combined fiscal deficit (state and centre)

% of GDP

SLIDE 67

Source :Bloomberg, Moody’s Investor Services; SBIMF Research.’ Local currency bond rating is shown in the graph

Moody downgrades India to lowest investment grade

Moody downgraded India’s sovereign bond rating to lowest investment grade from Baa2 to Baa3 with a negative outlook

Rationale for downgrade

Limited effectiveness of the reforms undertaken
Challenge for policymakers to mitigate the risks of

relatively low growth

Further deterioration of General Government Debt
Stress in India’s financial sector

Factors that could lead to upgrade/downgrade of the rating

Rating outlook to be changed to stable if policy action

raise the confidence that real and nominal growth will rise to sustainably higher rates, including measures that enhance financial stability .

The rating is at par with both

S&P and Fitch now. As per the press release, the rating downgrade has not been driven by the impact of the

pandemic. Rather, the

pandemic amplifies vulnerabilities in India’s credit profile that were present and building prior to the shock.

SLIDE 68

Valuations: increased attractiveness in May

Source : Bloomberg ; SBIMF Research.

Spread of 10- year GSec vs. Repo higher than long term average Spread of 10-year G-sec (India-US) adjusted for 1-year currency premium at 1.2%

50

50 100 150 200 250 300 350 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Aug-18 Mar-19 Oct-19 May-20 10 year G-sec minus Repo rate (in bps) 10 year average 5 year average

Spread when CD ratio>74%: 70bs Spread when CD ratio<74%: 58bps LTA since 2001: 89 bps

3.0
2.0
1.0

0.0 1.0 2.0 3.0 4.0 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 May-19 Nov-19 May-20 India minus US 10 year G-sec adjusted for 1 yr rupee fwd premium(in %) LTA since 2001 10 year Avg (in %) 5 year average (in %)

SLIDE 69

Source: Bloomberg, SBIFM Research

10-year G-Sec is trading at 176 bps spread to repo rate

8.0 6.4 6.7 5.8 4.4 4.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Dec-18 May-19 Oct-19 Mar-20 10 year G-sec (in %) Repo Rate (in %)

Debt Outlook

Indian G-sec market has been extremely volatile, but the broad trajectory has been that of falling yields since September 2018. 10-year G-Sec yield finally glided below 6% to end at 5.76% in May. The current crisis is that of a health crisis but eventually leading to shutdown of economic activity across the globe. Growth and trade is expected to plunge even sharper than 2008

crisis. Consequently, a few central banks and governments has come to support the economic

activity in quantum never seen before. In India, while the government has been calibrated in its approach, given the challenges in its balance-sheet, RBI has been forthcoming to do ‘whatever it takes’ to support growth and the financial system by keeping the cost of fund low, injecting liquidity, allowing regulatory forbearance and incentivizing banks and financial institutions to lend. Coming to the markets, benign crude oil prices, risk of lower growth and expectation of continued monetary easing support the fall in yields. However, concerns surrounding the likely fiscal slippages to combat the impact of COVID-19 and FPI outflows limit the fall. Inflation has likely peaked in February 2020 and should moderate through 2020. As such growth inflation dynamics are supportive of continued monetary policy easing. Rupee hovered between US$ 75-76 in May. A favourable external account dynamics (emanating primarily from low crude prices) and strong FX reserves balance should keep the rupee supported. Government balance-sheet is stressed and pose significant risks of slipping the stated deficit

target. The GoI has already revised up its FY21 gross market borrowing to Rs. 12 trillion and

permitted states to take their net borrowing up to 5% of their GSDP subject to certain

conditions. RBI may have to come forward and monetize the fiscal deficit via OMO purchase.

In the other fixed income assets, challenge is of massive liquidity on one hand and deteriorating credit conditions on the other.

Implications: We stay long duration as we think that the current situation clearly portrays that monetary policy rates are likely to stay low for long. Ultimately the central bank will continue to take alternate policy actions so as to keep the rates across the asset class

low. However, we are extremely selective in taking credit risks.

SLIDE 70

Thank you

SLIDE 71

Disclaimer

This presentation is for information purposes only and is not an offer to sell or a solicitation to buy any mutual fund units/securities. These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates included here constitute our view as of this date and are subject to change without notice. Neither SBI Funds Management Private Limited, nor any person connected with it, accepts any liability arising from the use of this information. The recipient of this material should rely on their investigations and take their own professional advice. Mutual Funds investments are subject to market risks, read all scheme related documents carefully. Asset Management Company: SBI Funds Management Private Limited (A joint venture with SBI and AMUNDI). Trustee Company: SBI Mutual Fund Trustee Company Private Limited.

SLIDE 72

Contact Details

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