Market yields were broadly range bound in November with 10-year-g-sec in 6.30% - 6.40% range. With inflation dropping below 5% and strong government revenues reducing fears of extra borrowings, market sentiment has improved. However, global cues continue to remain negative with tapering and expectation of rate hikes.
This is what the previous month looked like. Does it set the tone for the coming month?
Let us hear what the experts have to say.
What to Expect
Avnish Jain, Head - Fixed Income, Canara Robeco MF
- Short term rates may continue to feel pressure from RBI’s stand on liquidity. Short term rates have gone up in the last few weeks but remain low. They may continue to inch up, though no sharp increase is foreseen
- Cut in fuel taxes may tamper inflationary pressure in the near term and robust government revenues obviate the need for any extra borrowings. Further, RBI is likely to have an accommodative stance in the near term. Long term bonds may continue to derive support from these
- As the global rate cycle seems to be turning while local inflation pressures seem to be abating a little, 10-year-g-sec yield may be in the range of 6.30%-6.50% in the near term
Harshal Joshi, Vice President - Fixed Income, IDFC AMC
- The near-term outlook for debt markets is more from what approach the RBI will take towards liquidity management rather than its rate hike schedule
- There is already buzz around RBI wanting to reduce the current level of heavily excess liquidity
- 10-year yield has started to move after discontinuation of bond purchases by RBI. This would result in flattening of 1-5 year yield curve
Manish Banthia, Senior Fund Manager, ICICI Prudential MF
- Reducing infections, robust vaccinations, government's focus on capital expenditure, supportive monetary & fiscal measures and buoyant external demand will support economic revival
- Post liquidity normalisation, RBI is expected to narrow the policy rate corridor to pre-pandemic level
- Due to the RBI policy normalization process, the short-term rates may move higher, which may lead to a reduction in the steepness of the yield curve
Sushil Budhia, Senior Fund Manager - Fixed Income Investments, Nippon India MF
- Near term market will take a cue from December policy. Global developments would have an implication on domestic inflation and growth trajectory
- RBI is expected to maintain an accommodative stance and reduce reverse repo and repo corridor by 20 bps
- 10-year g-sec rates are expected to be in the range of 6.25% to 6.45% in the near term. The short end of the curve would depend upon RBI policy stance on reverse repo and repo corridor
What to recommend
Avnish Jain, Head - Fixed Income, Canara Robeco MF
- Low duration funds for investors having a horizon of up to 1 year
- Short duration and corporate bond for one to three year investment horizon
- Gilt/dynamic or income funds for greater than three year horizon
Harshal Joshi, Vice President - Fixed Income, IDFC AMC
- Liquidity: For very short-term parking of surplus or emergency corpus
- Core: Funds that focus on high credit quality and low to moderate maturity profile
- Satellite: Funds that can take a higher risk, either duration risk or credit risk or both
Manish Banthia, Senior Fund Manager, ICICI Prudential MF
- It may be an opportune time to invest in floating rate bonds in this interest rate scenario with expected volatility
- Go for short duration funds that follows barbell strategy i.e. invest in both high risk and no risk debt instruments
- Incorporation of good quality AA corporate bond due to higher spread premium
Sushil Budhia, Senior Fund Manager - Fixed Income, Investments, Nippon India MF
- Ultra-short/low duration for investors having three to six month investment horizon
- Short term/banking PSU debt funds for an investment horizon of 18-36 months
