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  • MF News Debt funds: What to expect in May 2022

    Debt funds: What to expect in May 2022

    Prashant Pimple of JM Financial Asset Management, Sandeep Agarwal of Sundaram MF and Sandeep Bagla of Trust MF share with us their outlook on the debt market for the coming month.
    Karishma Gagwani Apr 30, 2022

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    After many years, the widely tracked 10-year g-sec touched 7.25% in Apr 22. CPI inflation in April was higher than market expectations at 6.95%. Experts believe CPI inflation is likely to remain over 6% for the next 3 months.

    Now the question arises - how will the debt market react to this change?

    Let’s hear expert outlook on the debt market.

    What to expect

    Prashant Pimple, CIO - Debt, JM Financial Asset Management 

    • We expect the debt market to move moderately due to the recent commodity price correction and lower than expected state loan supply
    • 10-year g-sec benchmark to remain range bound between 7.00% to 7.25% in the coming quarter
    • The shorter end up to 1 year to remain between 4.00% to 5.25% and may gradually move up as repo rate hikes materialise and surplus system liquidity reduces

    Sandeep Agarwal, Senior Fund Manager - Fixed Income, Sundaram MF

    • RBI is expected to change its accommodative stance in the coming policy. Interest rates to remain volatile with an upward bias
    • 10-year g-sec yield to trade between 7.10% and 7.50% in the near term
    • Short end of the curve would keep on rising depending on pace of liquidity withdrawal and timing of rate hike by RBI

    Sandeep Bagla, CEO, Trust MF

    • The outlook for debt market is bearish as inflation is relentless, global bankers are increasing short term rates and fiscal situation is onerous
    • Corporate bond spreads could start widening and this could impact bond fund returns
    • 10-year g-sec to stay between 7.10% and 7.50% in the coming month
    • Unless RBI reduces liquidity, short end yields to trade in a narrow range

    What to recommend

    Prashant Pimple, CIO - Debt, JM Financial Asset Management 

    • Investors can opt for short duration schemes in general
    • Overnight funds, liquid funds and low duration funds for investors with near term liquidity requirements
    • Dynamic bond fund investors with medium to long term investment horizons
    • Gilt oriented funds for an investment horizon of 3 years and above

    Sandeep Agarwal, Senior Fund Manager - Fixed Income, Sundaram MF

    • Ultra short or low duration funds for an investment horizon of up to 6 months
    • Short duration, banking & PSU debt fund or corporate bond fund for a longer investment horizon

    Sandeep Bagla, CEO, Trust MF

    • Short term funds for patient investors
    • Roll down funds with 2-year maturity for a good risk reward ratio

     

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