Listen to this article
After a month-long volatile phase, the debt market finally settled down a bit in July despite rising inflation in US.
The debt market will witness a lot more action in August as Fed has signalled more rate hikes coupled with chances of rate hikes by RBI.
In such a scenario, what should you expect from the Indian debt market in August? Let’s hear what the experts have to say.
Mahendra Jajoo, CIO – Fixed Income, Mirae Asset MF
- July was mostly stable but now we are seeing some tightness in the money market as excess liquidity has been sucked out
- Markets will continue to be driven by two factors — central bank actions and geo-political situation (Russia-Ukraine crisis)
- 10-year g-sec is likely to be stable at around 7.5% as the market is already pricing in a repo rate of 6-6.5%. Short-term rates may continue to inch up
Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC
- Globally, bond yields and commodity prices were driven by two opposing narratives – ‘inflation’ vs ‘recession’ with respect to the US economy
- The RBI is likely to hike the Repo rate by 25-50 bps on August 5. By the end of FY23, the repo rate may go up to 6%
- Medium-to-long term yields may not move much in the near term as the market has already priced in aggressive rate hikes. Short-term yields may continue to rise along with every rate hike
Rahul Pal, CIO- Fixed Income, Mahindra Manulife MF
- Volatility cooled down a bit in July as there was some respite on the inflation front
- US slipping into recession may help bring down commodity prices and hence, positively impact the debt market
- RBI is expected to raise rates by 25-35 bps
What to recommend
Mahendra Jajoo
For medium-to-long term, target maturity fund is the best choice given their potential to deliver predicable returns. In the short-term, liquid and ultra short-term funds are good options.
Pankaj Pathak
Dynamic bond funds are suited for 2-3 year time-frame, provided the investor can tolerate some volatility
Liquid funds are a good option for the short term as their performance is likely to improve
Rahul Pal
The longer end of the curve is likely to do better than the shorter end. Hence, we recommend medium term and long duration funds
