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  • MF News Fixed income market commentary – what to expect in April

    Fixed income market commentary – what to expect in April

    A snapshot of key events in the month gone by and what to expect now.
    Shreeta Rege Apr 1, 2019

    Reserve Bank of India (RBI) introduced a new tool for liquidity management in March called rupee-dollar swap. Herein, RBI purchased US$ 5 billion worth of currency to inject Rupee liquidity in the market. So far, RBI has used OMO (open market operations) route for liquidity management. These OMOs provided support to g-sec yields. However, RBI has used both these tools to tackle liquidity deficit.

    Overall, markets remained cautiously optimistic during the month. While slight uptick in inflation and concerns over government front-loading the bond purchase calendar dampened market sentiments, stronger rupee and dovish Fed policy announcement of no further rate hike in 2019 supported the markets.

    How did funds react?

    Long duration funds were the best performers during the month. Increase in Rupee led by sharp fall in crude price, OMO purchases by RBI and dovish Fed commentary supported long-term bond yields in March.     

    We talked with Akhil Mittal, Senior Fund Manager, Tata MF, Kumaresh Ramakrishanan, Head – Fixed Income, DHFL Pramerica MF and Lakshmi Iyer, CIO-Fixed Income & Head-Products, Kotak MF to understand market triggers in April and their near term market outlook.

    Key triggers for the upcoming month   

    The upcoming monetary policy meeting will be the key event for the month, say all the fund managers. They are of the consensus that RBI is likely to cut repo by 25 bps in the upcoming policy meeting. In addition, Akhil expects RBI to change stance from neutral to accommodative.

    Kumaresh feels that dovish Fed policy, benign inflation and soft growth have made the environment conducive for a rate cut. Market participants will also follow RBI’s stance on liquidity in the policy. 

    March saw an increase in foreign flows; market participants will also be tracking global cues to understand whether the inflows will continue, shared Akhil.

    Outlook

    Lakshmi expects markets to remain fairly benign in the near term. She believes that there is scope for further rally in corporate bond prices if oil prices fall further.

    Akhil expects 10-year g-sec to fall by 10 to 15 bps in the next one and a half months. Markets are likely to remain fairly stable, offering good opportunities in the longer duration.

    Kumaresh expects markets to be largely benign; however, any unexpected global event may induce volatility.

    Which funds should you recommend to your clients?

    According to Kumaresh, yields in the 2 to 5 years segment continue to remain attractive. Investors with higher risk appetite can also look at dynamic bond funds as they allow fund manager the flexibility to take tactical exposure to long duration bonds based on his interest rate view.  

    Lakshmi feels that investors should look at short-term funds to medium term funds, as g-secs will not benefit significantly from the rate cut due to a likely increase in government borrowing and OMOs.

    Investors with low to medium risk appetite can look at short-term funds, said Akhil. However, if the investor is comfortable with interest rate risk, then dynamic bond funds can also be a good option as there are significant opportunities in the longer end of the yield curve.

    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

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