Fund managers recommend investors to invest in medium term income funds having exposure to corporate bonds.
Reserve Bank of India (RBI), in its fourth bi-monthly policy review, has kept the repo rate and CRR unchanged at 8% and 4% respectively.
However, in order to promote export, the central bank has reduced Export Credit Refinance (ECR) facility from 32% of eligible export credit outstanding to 15% with effect from October 10.
Also, RBI will continue to provide liquidity under 7-day and 14-day term repos up to 0.75 per cent. Consequently, the reverse repo rate remains unchanged at 7 % and the marginal standing facility (MSF) rate and the Bank Rate at 9 %.
RBI Governor Raghuram Rajan in a press statement said, “Since the third bi-monthly monetary policy statement of August 2014, global activity has been recovering slowly from the setback in Q1 of 2014, on the back of strengthening consumer spending and gradually improving labour market conditions in advanced economies (AEs) like the United States. However, the Euro area, where growth has stalled in the core economies, continues to be weak. Major emerging market economies (EMEs) continue to struggle with tepid domestic demand and headwinds from structural impediments. With monetary policy in AEs remaining highly accommodative, investor risk appetite has increased and spread to various asset classes. With volatility perhaps excessively low, financial markets have risen to new highs, driving surges of capital flows to EMEs. Apart from concerns about a sudden correction in financial markets if investors misread the timing of a reversal of the US monetary policy stance or if geopolitical tensions intensify, some downside risks to growth also persist, such as a possible further slowdown in the Euro area.”
We asked experts about what this means for investors.
Santosh Kamath, Managing Director, Local Asset Management – Fixed Income, Franklin Templeton Investments, India
The base case remains of stable policy rate regime in the months ahead. We continue to remain positive on corporate bonds and on the shorter end of the curve presently. Exposure to longer-dated gilt/bond strategies could be suitable for investors with relatively higher risk profile and longer investment horizon.
Vidya Bala, Head - Mutual Funds Research, FundsIndia.com
Rates are likely to remain in the range of 60-90 basis points from the current level. Investors should consider deploying their money in medium term income funds having exposure to corporate bonds. A hold strategy would be ideal on these funds for investors with more than one years’ time horizon. It would be advisable to avoid gilt funds at this juncture.
Arvind Sethi, Managing Director and Chief Executive Officer, TATA Mutual Fund
We believe that though there are upside risks as mentioned by RBI, the recent softening of commodity and crude prices along with stable currency and fiscal measures by government will ensure that the inflation will continue to come down and should be in range of 6% to 6.5% by March 2016. Having said that, RBI would not want to take any hasty decision on policy easing and would want to see off some of the risks and progress of inflation on desired glide path. Hence we would not see any rate cuts from RBI in this financial year. We believe RBI would be in a position to cut rates only in next financial year.