DWS Short Maturity Fund

The Macro Economic Environment

• World Economy Recovery is on Twin Track

• Developed world recovery is expected to remain muted due to ongoing deleveraging, fiscal restraints and other crisis legacies
• Emerging markets, led by Asia are exhibiting strong recovery backed by robust domestic demand 

• Developed Economies Recovering From Set Backs

– US economy to exhibit slow growth on heavy debt burden.

– Federal Reserve's US600 billion purchase program is expected to boost growth

– Euro zone continues to be plagued by sovereign debt worries


• Emerging Market

– Asia is leading the world recovery

– Rising inflation is becoming a key concern.

– Countries like China, Korea, Indonesia, Australia and India have aggressively raised rates to manage inflation expectations

• India's 2QFY11 GDP grew at 8.9%, beating expectations

• Industrial production continued to be volatile. After showing 4.4%YoY (revised) in Sep'10, the
  growth jumped to 10.8% in Oct'10

• Exports continued to be resilient, growing by 21.3% YoY in Oct'10, while imports slowed to
  single digits, printing 6.80% YoY.

• WPI Inflation continued to be sticky, going slightly up to 8.58% for Oct'10. Inflation for Nov'10 
  is expected to be around 7.5%

View on Debt Market
• Liquidity continues to remain tight as government collections exceed the spending

• Credit markets continue to function smoothly despite liquidity constraints, though short term  
   rates continue on an uptrend

• Longer term credit spreads have remained stable, despite tight liquidity conditions, as the  
  Liquidity is expected to ease in the last quarter of the fiscal

• There is a good supply of quality papers from corporates and PSUs allike. Recent issuers include
   NHB, NABARD, IOC, HDFC, IRFC, PFC, REC, and PGC.

• Though supply of government bonds is lesser in the 2HFY11, increased credit growth in the  
  busy season may affect demand for government paper.

• This is likely to increase demand for corporate bonds. This could be positive for DWS Short   
   Maturity


Why DWS Short Maturity Fund

• Liquidity situation changed dramatically since start of this calendar year

• The large monies received by the government from 3G/BWA (around Rs.1,06,000 crore) put 
   the systemic liquidity in deficit, since June'10

• With economy growing strongly, tax collections have been healthy

• With government collections exceeding its expenditure, the cash surplus of the government with
   RBI has been increasing on a monthly basis

• Currently the cash surplus of government with RBI is around Rs.90, 000cr

• This continues to create a “temporary” liquidity shortage, till the government spends these  
  funds

• RBI has resorted to OMO purchases to tackle the liquidity issue. It also cut down auction size   to reduce pressure on liquidity

• It is expected that liquidity will improve in the last quarter of the fiscal   2010-11