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One of the biggest news for fixed income market was inclusion of Indian government bonds in the global emerging market index. What will be the impact of this inclusion in fixed income market and what does the upcoming month hold for the debt market?
Read on to know what experts have to say.
Anand Nevatia, Fund Manager, Trust MF
Overall view
- The month was a momentous one as India was included in the JP Morgan Bond Index paving the way for an inflow of $25-30 billion in Government of India Securities.
- In terms of inflation, the CPI print for August 2023 at 6.83% was lower than the market’s expectation of 7.10%. Core CPI at 4.8% gave further comfort to the market
- The 10-year benchmark bond will trade in the range of 7.05% to 7.25% in the medium term with positive bias due to index inclusion, moderation in CPI and lower supply
Funds Recommended
- Short term bond funds and corporate bond funds can provide attractive accrual income to investors. Investors should also look to add duration in the portfolio for possible capital gains as and when the central bank starts rate softening cycle
Avnish Jain, Head-Fixed Income, Canara Robeco MF
- In September 2023, global debt markets were influenced by the expectation of higher interest rates
- On the domestic front, falling inflation may support markets and inclusion in global bond indices has kept yields in check
- Liquidity has tightened due to advance tax outflows, but it should normalize somewhat in early October, though it may tighten again ahead of the mid-October festival season
- Short-term rates may face pressure due to tight liquidity, global rate uncertainties and high oil prices
Pankaj Pathak, Fund Manager - Fixed Income at Quantum Asset
Overall view
- The positive effect of inflation cooling off from the previous month created volatility in the bond market
- The inclusion of indexes has altered the market's perspective. Inflation, which peaked in July, is gradually decreasing and we anticipate that CPI inflation will fall to approximately 5% by the end of the year, with core inflation declining to 4.5%.
- 10-year yield to decline to around 7% or even lower by the end of this year
Funds recommended
- The upcoming year appears promising for investors seeking opportunities in long-duration bond funds. Dynamic bond funds and Gilt funds stand out as attractive choices for those interested in long-term investments. On the other hand, for those with shorter-term objectives, liquid funds are the optimal choice
Sushil Budhia, Senior Fund Manager – Fixed Income Investments, Nippon India Mutual Fund
Overall view
- Market has remained supported for major part of the month on expectation of Indian government bonds (IGBs) to be included in the Global Emerging Market Bond Index. Post the news of Index inclusion, we have seen some selling pressure in IGBs by traders as the market is now focusing on macro data
- RBI is expected to keep the repo rate unchanged in its upcoming meeting. Also, with expectation of longer hawkish pause from Central Banks (Global and domestic), the yield will remain at current elevated levels for near terms and 10-year IGB is expected to trade in range of 7.10% – 7.30% yield to maturity
- As the systemic liquidity remains in the neutral to negative zone ahead of festive season, lower end of the curve will also expected remain elevated at current level and yield curve is expected to remain flat
Recommended Funds
- Ultra-short category funds (money market funds, low duration funds and ultra short term) for investors having 3-6 months investment horizon and short term category funds (Short term, banking and PSU and corporate bond funds) for investors having investment horizon of more than 12 months
- Investor with longer investment horizon (2-3 years plus) may look at both actively managed and / or long tenor rolldown strategies (5 years and beyond)
