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The month of March saw volatility in the movement of Indian rupee and the Federal Open Market Committee (FOMC) deliberating on reduction in interest rate. The RBI also made efforts to infuse liquidity through measures like Open Market Operations (OMO) and currency swaps.
As the financial year comes to an end, what can we expect from the fixed income market in the next financial year? Cafemutual asked fixed income fund managers their views on the debt market in the new financial year.
Akhil Mittal, Senior Fund Manager - Fixed Income, Tata MF
Globally, USD movement along with FOMC decision, local inflation trajectory and RBI actions on liquidity (USD swap and OMO purchases) were the key factors impacting debt markets in March.
We are now looking forward to the MPC (Monetary Policy Committee) meeting decision scheduled in early April. The market is looking forward to a rate cut along with a change in policy stance.
In the medium term, global financial markets will witness reduced volatility. I expect USD to start settling in its current range and hence we might see a reversal of safe haven trade. This would mean flows into Emerging Markets (EMs).
On the domestic front, I believe RBI might have to be more aggressive in supporting the economy with counter cyclical measures. Inflation seems to be coming in expected trajectory and with growth continuing to lag, we will see more rate cuts.
Recommended funds
Longer duration maturity funds for possible alpha on rate movement and lower reinvestment risk. Longer duration debt funds are a better choice in an expectedly declining cycle for investors with a longer investment horizon.
Avnish Jain, Head – Fixed Income, Canara Robeco MF
We expect the RBI to cut rates again by 25 basis points in April, with further rate cuts likely in the coming months as GDP growth shows signs of slowing. The next few months could be volatile but we anticipate a downward shift in the yield curve, driven by expectations of rate cuts in April and beyond, along with liquidity-enhancing measures from the RBI. We foresee the 10-year yield staying within the 6.65% to 6.75% range. A potential market rally ahead of the April policy meeting is also possible.
Recommended funds
For short-term investments (3 to 6 months), low-duration or ultra-short-term funds are a good choice. Long-term investors may find opportunities in duration-focused funds such as gilt funds, dynamic bond funds and income funds.
Marzban Irani, CIO – Fixed Income, LIC MF
As we move into April 2025, borrowing calendars from central and state governments will be closely watched by the market participants. Permanent infusion of liquidity by way of dividend from RBI in May 2025 might lead to lower money market yields.
With headline CPI inflation showing a declining trend and expected to hover lower as per RBI estimates, the market is expecting additional rate cuts from the central bank in the upcoming Monetary Policy Meeting.
Recommended funds
Funds with 3-5 year duration
Siddharth Chaudhary, Senior Fund Manager – Fixed Income, Bajaj Finserv MF
We have seen a more coordinated policy approach from the government post the financial budget. All the levers available to policymakers from fiscal, monetary, liquidity and even easing of macroprudential norms have been put into action to support growth.
Apart from the MPC outcome for domestic markets, tariff-related announcements by the US will influence growth and rate cycles across the world.
We see a 50-bps rate cut cycle from here. In India, Inflation is expected to be well within target range of MPC and growth is expected to come back to a long-term potential growth rate. This can change if tariff-related uncertainty hurts growth worldwide including India.
Recommended funds
Investors with higher risk appetite and longer investment horizon should invest in gilt funds. Even funds with higher exposure to corporate bonds like banking & PSU bonds and corporate bonds would perform better as absolute yields remain attractive.
