The RBI governor hinted that interest rates may not soften anytime soon. Has it come as a surprise to you? Have you reshuffled your portfolios?
The RBI monetary policy stance hinges on the trajectory that CPI is likely to take over the next few months. To that extent, unless the CPI does not show a visible deceleration, it may not be possible for rates to meaningfully come down. Having said that, the near term direction for CPI seems to be on lower side which could warrant a wait and watch mode on policy rates. Our portfolios are geared accordingly to take advantage of rate fluctuations if any across monetary policy review due in April.
Your fund house is launching Kotak Medium Term Fund. What is the rationale behind launching this fund? Why should investors consider this fund?
Kotak Medium Term Fund is being launched at a time when the yield curve across the tenure is at relatively elevated levels. The rationale was to offer a mix of quality as also accrual assets in the portfolio with the intent of reducing volatility in comparison with long duration funds. Investors looking at investment horizons of 2-3 years could look at core fixed income allocations towards this strategy
What is your outlook on gold?
Gold has had a very glorious run over the past five years on the back of relentless money supply created by central bankers across the world. With the excess liquidity process now unwinding as also the global growth outlook improving, we believe that risk assets like equity would likely do better. In such a scenario, we do not expect gold to outperform. This could be a phase where we could see consolidation in gold where rallies could see gold being sold globally. Geo political risks however, could offer some natural anchor to gold prices.
Some fund houses have launched Inflation Indexed Bond Funds. Are you planning to launch an Inflation Indexed Bond Fund?
Inflation Index Bonds are good assets to form part of a bigger portfolio as the secondary market for such bonds is yet to evolve. We have small allocations to some of our existing open ended income funds. While we would keep evaluating various opportunities, we currently do not have plans to launch one such fund
What is your outlook for the debt market in 2014?
Interest rates are likely to remain stable for most part of 2014, with a possible easing bias if inflation continues to remain on the downward move and in line with RBIs expectations. However, we do expect volatilities to continue, which would therefore offer potential alpha generating opportunities this year.
What are the key risks and opportunities that you are observing in the market in the near term?
Inflation and politics would be the key risk markets would watch out for in the near term. Additionally, the government supply would add to some more concerns given that as always, the borrowing tends to get front loaded in the 1st half of the financial year.
HNIs are finding tax-free bonds floated by PSUs offering attractive returns. Experts have observed that some HNIs moved out from bonds funds to invest in tax-free bonds. How are you competing with these products?
Its apple vs oranges for comparison to start with. Mutual funds on debt side do not have such long term products to offer plus with assurance of interest/ yield. Fixed income products however could be used as avenues for parking such long term surpluses, with the added advantage of liquidity being available due to the open ended nature of such funds.
Additionally, mutual funds also have fixed maturity plans of varying tenures, which help mitigate interest rate risk to a large extent.
What is your advice to investors at this juncture?
Typically, investors tend to invest with a rear view mirror approach i.e. looking at past returns and then deciding to or against the investment. This may not always be successful given that economic cycles determine the performance of a particular asset class. Hence our advice to investors would be that they should not get carried away by any one particular asset class because of its past performance. Instead, maintain the investment discipline in line with one’s own risk appetite and of course intended investment horizon.
