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The continuity of the current government has given a lot of comfort to the debt markets. With borrowing, fiscal deficit and fiscal consolidation path expected to remain unchanged, controlled inflation and fiscal consolidation have further boosted the bond markets. Also, continuous buying from FPI investors has led to the bond continuing its rally.
Will this trend continue for the coming month?
Let’s hear what our experts Devang Shah Head, Fixed Income at Axis MF, Prashant Pimple, CIO Fixed Income, Baroda BNP Paribas MF and Siddharth Chaudhary, Senior Fund Manager, Fixed Income, Bajaj Finserv MF have to say about the debt markets.
Devang Shah Head, Fixed Income at Axis MF
Outlook
- Banking liquidity is expected to increase due to higher government spending. This spending will be positive for the short term bonds
- US Fed is expected to cut rate rates and follow a dovish tone
- Uncertainty on crude prices and geopolitical risks can lead to uptick in commodity prices
- Demand and supply dynamics and inflation are expected to be very favorable for current markets
- 10-yr- G sec is expected to trade at 6.75%
Fund recommended
Investors for short term can consider gilt funds and long duration funds whereas medium term investors can go for short duration funds.
Prashant Pimple, CIO Fixed Income, Baroda BNP Paribas MF
Outlook
- The fundamentals remain supportive for domestic bond markets and the bigger trigger for India’s yield is expected to come from improving government bond supply demand dynamics post the JP Morgan India Bond inclusion
- Liquidity conditions are likely to improve from current levels due to factors like maturities and increased spending by the government
- India yields are likely to soften from current levels and any uptick can be an opportunity to invest
- 10-yr G-secs is expected to hover around 7.00-7.10%
- A downward correction to shorter end of the yield curve is expected due to better liquidity conditions
Fund recommended
- Investors can consider funds like liquid, ultra and money market. However, if they have more than one year of investment horizon, they should invest in short term and dynamic bond funds.
Siddharth Chaudhary, Senior Fund Manager, Fixed Income, Bajaj Finserv MF
Outlook
- Macroeconomic stability is expected with continued FPI inflows post bond index inclusion and expectation of shallow rate cut cycle
- In near term, strong growth conditions have provided RBI policy space to remain on pause till there is clarity on food inflation risks
- Heatwave conditions have added to near-term upside risk to food inflation which can be expected to subside as monsoon season progresses
- US Fed can see some rate cuts in the near term and US CPI can see favourable numbers
- Yields are expected to be range bound. Expected 10-yr g sec benchmark is expected to be in range of 6.95% to 7.05%. Short end of the curve can see rally of 10-20 bps rally as liquidity is expected to improve
Fund recommended
- Investors with a holding period of at least 1 year can consider duration funds. Others can consider banking PSU funds and short-term funds
