Fund managers say that short term funds like liquid, ultra short term and short term income category are likely to find traction.
The RBI today announced that it has kept the cash reserve ratio (CRR), a portion which banks are required to park with RBI, unchanged at 4.75 per cent. It has also kept the repo rate and reverse repo unchanged at 8.5 per cent and 7.5 per cent, respectively. The central bank had cut CRR by 75 basis points from 5.5 per cent to 4.75 per cent on March 10, 2012 to infuse Rs. 48,000 crore in the system.
The central bank said that the further rate actions will depend on the inflation movements.
The industrial production growth, measured by industrial production (IIP) moderated to 4 per cent during 2011-12 (April-January) from 8.3 per cent in the corresponding period a year ago.
Mahendra Singh Jajoo, Executive Director & CIO-Fixed Income, Pramerica Mutual Fund says that the bond prices will become attractive by early May. “Bond markets may shift focus to borrowing calendar and the high pitch borrowing in the next quarter. We expect bond prices therefore to reach an attractive valuation by early May by which time we shall also have the next monetary policy review and early leads on monsoon. As for short term rates, we expect them to ease with expected improvement in liquidity situation due to government spending and renewed capital flows in April.”
Mahendra says that with focus on liquidity injection and deferment of rate cuts, short term funds like liquid, ultra short term and short term income category are likely to find traction. He suggests investors to consider investing in short term income funds at this juncture.
Fund managers say that now all eyes are on the budget now. “It won’t affect debt markets as it was entirely in line with expectations. Now the ball is in government’s court. Now only rate cuts will take place. However RBI has avoided giving any timeline on the same. We advise investors to continue invested in debt funds,” says Killol Pandya, Head of Fixed Income, Daiwa Mutual Fund.
Chaitanya Pande, Head Fixed Income, ICICI Prudential AMC says,” “We expect one to three year space to continue and outperform by giving a good combination of lower volatility and better carry. We therefore still think that ICICI Prudential Short Term Plan and the ICICI Prudential Regular Savings Fund are best suited for people who are looking for a reasonable return with moderate risk maturity bucket. For investors with a shorter investment horizon, we recommend investments in ultra short term plan. Investors who are currently invested in our duration products need to hold on to their investments for the time being.”
