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The union budget announcements and repo rate hike were the two key events that shaped the debt market in February 2023. But what will be the key triggers and determinants from here on?
This is how the experts look at March 2023.
Kaustubh Gupta, Co-Head Fixed Income, Aditya Birla Sun Life MF
Overall view - Inflation and geo-political uncertainties could force RBI to change its current stance. However, the liquidity situation will dominate local fixed income markets and would require active RBI intervention to support funding needs post June 2023. Also, tighter liquidity and rising credit demand will put pressure on corporate bonds.
Fund recommendation - Actively managed funds are most likely to do well as play on liquidity needs active modulation. Short-term investors can look into money market, ultra-short-term and low duration funds. And investors with a longer-term investment horizon can consider short term funds and passive strategies like target maturity funds.
Manish Banthia, Deputy CIO-Fixed Income, ICICI Prudential MF 
Overall view - Internal factors like inflation and RBI's actions and external factors like global macros and central bank actions may continue to influence the direction of bond yields. Yields may remain elevated in the near future.
Typically, the shorter end of the curve remains tight between January and March. But as we move to the new financial year, we may see cooling off of short term yields. However, long term yields may continue to witness pressure.
Fund recommendation - Given the fast-changing macroeconomic conditions, it makes sense to explore dynamic duration funds which can actively manage duration or instrument profile based on the evolving market conditions. Also, investors may consider credit risk funds.
Murthy Nagarajan, Head-Fixed Income, Tata MF
Overall view - There are no expectations of further rate cuts in the current fiscal. However, as CPI inflation comes down on a durable basis after 9 months, the room for rate cuts should open up.
Also, there will be no auction of government securities in March 2023 and the ten-year yield is likely to trade between 7.25-7.50%. Further, good demand from investors like insurance companies and provident funds may keep the long end supported.
Tight liquidity along with the expectation of at least one rate hike is likely to keep the short end rates elevated.
Fund recommendation - Investors with a six-month horizon may opt for ultra-short term, money market and low duration funds. Short term bond funds make sense for investors with a six-month and above time frame. And, investors with a one-year perspective may look at corporate bond, banking and PSU and gilt funds.
