Listen to this article
RBI Governor’s statement ‘pause not a pivot’ did not affect the market negatively as expectations built for a prolonged pause before a rate cut. Additionally, expectations of a likely recession in the US supported the yields.
This summarises the debt market in April 2023. But what can you expect from here on?
Let’s hear what the experts have to say.
Abhishek Bisen, Head of Fixed Income & Fund Manager, Kotak MF
Overall view - Our growth inflation and interest rate equation is well balanced at a 6.50% repo rate. The FED may raise interest rates by 25 bps and indicate a long pause in its May 2023 meeting. However, if the hike is greater, RBI could respond by increasing its repo rate to 6.75%.
In the near term, the 10-year-g-sec is likely to trade between 7 and 7.30%. And due to the tight liquidity and RBI’s stance on liquidity withdrawal, short term rates are likely to remain firm.
Fund recommendation - Given the outlook on rates, we suggest investors step up the duration of their investment portfolio. They can choose from medium to long term actively managed strategies like dynamic bond funds, gilt funds, etc. and can also consider target maturity SDL funds as per their investment horizon.
Gurvinder Singh Wasan, Senior Fund Manager and Credit Analyst, JM Financial MF
Overall view - Markets to remain cautious on account of risk coming from adverse climate-related food inflation, large borrowing program in a tight liquidity scenario and geopolitical risks.
Also, given the higher possibility of a prolonged pause in the rate hike cycle, the 10-year-g-sec may trade with a bullish bias. Also, the decision to pause rate hikes should support the short end of the yield curve. However, tightness in liquidity could limit the fall in yields in this segment.
Fund recommendation - We suggest overnight, liquid and low duration funds for investors with near term liquidity requirements. On the other hand, investors with medium to long investment horizons can look at the short term space and dynamic bond funds.
Sushil Budhia, Senior Fund Manager-Fixed Income Investments, Nippon India MF
Overall view - With all macro indicators in improving trajectory the market is expected to trade with a softening yield bias. However, any large negative surprise in inflation due to the El Nino effect is a risk to this view.
Also, the 10-year-g-sec may trade in the band of 7-7.25% in the near term. Also, higher carry and pause in the RBI policy rate are likely to support the short end of the curve.
Fund recommendation - Ultra-short category funds like money market, low duration and ultra-short duration funds for a 3-6 month investment horizon. And, investors with a horizon of more than 12 months can consider banking & PSU and corporate debt funds.
