RBI in its second bimonthly monetary policy released on Wednesday, has kept the repo rate unchanged at 6.25%. In keeping with its earlier announcement the policy’s stance continues to be neutral.
The RBI had changed its policy stance in February from accommodative to neutral citing concerns on inflation.
We asked various fixed income managers, what they thought of the continued neutral stance of RBI and which funds advisors must look at in the current climate. Read on to see what these experts have to say.
Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mahindra Mutual Fund
I believe there is a scope that the stance will be reversed to accommodative, even though the monetary policy committee has been consistent with a neutral stance.
Keeping this in mind, advisors should tell the clients who have invested in long-term bond funds to stay invested as it may give high returns in the future. For new investors, advisors can advise clients to go for funds that have good quality corporate bonds whose credit rating are likely to be upgraded. Ideally, they should follow 85-90% accrual and 10-15% duration in their portfolios.
R Sivakumar, Head of Fixed Income, Axis Mutual Fund
The decision was in line with expectation. The interesting thing is that RBI has substantially marked down the inflation forecast to 4% for the rest of the year. Ordinarily, this sort of markdown should have resulted in some change in policy stance which has not happened. However, RBI has understood that they were more hawkish in their previous monetary policy than was required.
Going further, RBI should be accommodative given the current inflation trajectory but it is uncertain when will RBI change their stance and cut rates.
In this respect, advisors should advise clients who are looking at the next 1-3 years, to go for short-term funds which take accrual strategy. Accrual strategy is not heavily dependent on the movement of the interest rate.
High-risk clients can take a tactical call as the yields are high right now. They can invest in long-term funds as rate hike risks are off the table.
Dwijendra Srivastava, Executive VP and CIO-Debt, Sundaram Mutual Fund
What has rekindled hope in the market is that if the incoming data is softer than what RBI is expecting, then rate cut is again on the table.
However, it does not mean that investors should go overweight on long-term funds as we believe that we are on the last leg of the rate easing cycle. There can be a maximum of 50 bps rate cut.
Advisors can advise their clients to invest in income funds and medium-term funds. Advisors can advise clients to look for funds that have 'mid-duration' strategy. They can look long-term at g-sec funds that have an average maturity of six years and corporate bonds that have an average maturity of four years.