Listen to this article
August 2022 was comparatively better for debt investors due to adequate system liquidity, subscription of government bond auctions (except floating rate bonds) and outperformance of Indian bonds over their US counterparts.
While hawkish RBI policy led to a yield spike, there was renewed hope in the market that the inclusion of Indian bonds in global bond indices could bring billions of US Dollars into India.
Does this set the tone for the coming month? Let’s hear expert views on this.
What to expect
Avnish Jain, Head-fixed income, Canara Robeco MF
- MPC (Monetary Policy Committee) is likely to increase the repo rate further in the next 2 policies. MPC is likely to increase it from the current 5.40% to 6.00% by December 2022. Repo rate hike likely to pause thereafter
- Global situation remains extremely volatile. The US Federal Reserve (US FED) is likely to keep hiking rates and the rates may stay high for longer to combat inflation
- 10-year g-sec rates may trade between 7.15% and 7.30%. Liquidity tightening due to festival season could impact short term rates and there could be upward movement in up to 1-year rates
Gurvinder Singh Wasan, Senior Fund Manager - Debt, JM Financial Asset Management
- As inflation is likely to remain higher for longer, central banks will continue to be in a rate hike mode. Also, global bond yields will continue to inch up higher
- Amidst tightening liquidity, elevated inflation and likely pressure on fiscal and current account deficit, interest rates may remain range bound in the immediate future and then move up gradually
- Inclusion of Indian bonds in the global index could cause near term yields to move lower. Eventually, they may move upwards. The short end of the curve would get repriced higher if the incremental credit-deposit ratio continues to go higher
Sandeep Bagla, CEO, Trust MF
- The debt market appears to be in a broad range. While the global rate environment is adverse, local sentiments appear to be high on anticipated increase in foreign investors’ demand
- Like August, September could be a decent month for fixed income investors. However, the longer term outlook remains bearish, as a weaker currency, higher wages and elevated commodity prices could shift inflation expectations upwards
- 10-year g-sec rates are likely to trade between 7.00% and 7.50%. The short end has already factored in repo rate increase and may perform well if rate hikes happen at a pace lower than expected
Sushil Budhia, Senior Fund Manager - Fixed Income Investments, Nippon India MF
- Stickiness of crude price may persist in the near term
- Inflation dynamics and gradual depreciation of rupee will only increase the export competitiveness; however, any negative surprise may lead to volatility going forward
- 10-year g-sec rates are expected to trade between 7.20% and 7.40%. Short end of the curve likely to remain elevated on the back of expected rate hike in RBI’s September policy
What to recommend
Avnish Jain, Head-fixed income, Canara Robeco MF
- Bonds in the 2 to 4-year maturity look attractive in the current market conditions
- Depending on their risk profile, investors can opt for short to medium term funds like short duration fund, corporate bond fund or banking & PSU categories
Gurvinder Singh Wasan, Senior Fund Manager - Debt, JM Financial Asset Management
- Overnight fund, liquid fund and low duration funds for investors with near term liquidity requirement
- Staggered allocations to short term space for investors with medium to long term horizon
- Dynamic bond funds for an investment horizon of 3 years and above
Sandeep Bagla, CEO, Trust MF
- Funds with maturities of up to 3 years are likely to perform well as yields have already discounted rate hikes
Sushil Budhia, Senior Fund Manager - Fixed Income Investments, Nippon India MF
- Ultra-short term debt funds for investment horizon of 3-9 months
- Short term debt funds for investment horizon of more than 18-24 months
- Funds with higher component of AA and below rated/structured instrument for investors with higher credit appetite
- 10 year/20 year roll down products for longer investment horizons
