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Despite tight liquidity, 10-year G Sec was hovering around 7.15% to 7.25% in January. As a result, many investors continue to prefer government bonds for their fixed income exposure.
How will the debt market perform in the coming month?
Our experts Avnish Jain, Head-Fixed Income, Canara Robeco MF, Gautam Kaul, Senior Fund Manager, Fixed Income, Bandhan MF and Rahul Singh, Senior Fund Manager – Fixed Income, LIC MF share their thoughts on what to expect in the upcoming month.
Avnish Jain, Head-Fixed Income, Canara Robeco Mutual Fund 
Outlook
- Debt markets remained range bound with 10-year G Sec hovering around 7.15% to 7.25%
- Tight liquidity led RBI to use variable repo rate (VRR) auctions to manage deficits
- Near-term market outlook depends on US FED and RBI meetings with key focus on fiscal deficit numbers
- Overall, market direction seems positive with lower yields expected as per US Fed policy indications on rate cuts
- The short end of the curve is likely to stay high due to tight liquidity whereas longer end curve rates are influenced by major central banks including RBI MPC
- 10-year G-Sec may remain in range of 7% to 7.20% in near term
Funds Recommended
- Investors should consider medium duration funds like Banking & PSU funds and long duration funds such as gilt funds
Gautam Kaul, Senior Fund Manager, Fixed Income, Bandhan Mutual Fund 
Outlook
- Government bonds are the popular choice for investors locally and internationally
- State development loans (SDL) and corporate bonds issuance exceeded expectations, increasing availability through government securities
- Despite tight liquidity measures by RBI, the overnight rate remains stable at around 6.75%
- Global interest rates have peaked with positive inflation changes and consistent improvements in India's domestic current account deficit
- Interest rates worldwide have reached their peak and there are positive changes in inflation
- The domestic current account deficit is consistently improving and there's an anticipated continuous influx of global funds into the Indian bond market
Funds recommended
- Investors should consider short-term or medium-term funds
Rahul Singh, Senior Fund Manager – Fixed Income, LIC Mutual Fund 
Outlook
- December 2023 CPI inflation was lower than expected at 5.7%
- The RBI Governor, speaking at Davos, highlighted the need for active disinflationary policy until achieving a durable 4% inflation target while expecting robust growth
- The financial year budget will provide a five-year economic policy direction, maintaining fiscal consolidation with a projected 5.3% GDP deficit in FY25, indicating substantial market borrowing of Rs.15.20 trillion
- Global factors such as crude demand projections and domestic and international considerations are impacting the G- Sec market
- Expectations include index inclusion inflows, potential rate cuts in the US in FY 2024-25, upcoming election results, domestic inflation trends and geopolitical conflicts affecting crude demand
- Overall, the 10-year benchmark is expected to range between 7% and 7.30%
