Short-term income funds, FMPs look good at this point: Sudhir Aggrawal
Published: 03rd October 2013 03:18 PM
Last Updated: 28th October 2013 12:01 PM
''We expect 10 year G-Sec to trade in the band of 8.40% to 8.90% in near term,'' says Sudhir Agrawal fund manager, debt at UTI Mutual Fund.
In an interview with Varsha Inamdar of Myiris.com, Sudhir Agrawal said, ''FMPs are suitable for those investors who are looking to lock in the higher interest rates at this point without intermediate volatility.''
Excerpt from interview Myiris had with Sudhir Agrawal:
1. What is your take on the current debt market scenario?
Post the Repo rate hike by RBI in its mid quarter review, we expect the shorter end of the yield curve to drift downward. On the other hand, long term yields may remain high for some time due to the expectations of further hike in Repo rate. This may result in steepening of the yield curve.
2. What is your view on mid-quarter monetary policy?
After the liquidity tightening measures on 15th July, 2013, there was a general consensus that these measures are temporary and may be reversed once the currency stabilizes. However, the hike in Repo rate in recent mid quarter policy review has come as a surprise and the markets have reacted negatively to this policy move. The focus now seems to be shifting to the high level of CPI inflation. Going forward, we expect RBI to further increase the Repo rate by 25 to 50 bps in line with its stated objective of controlling the inflation.
3. Where do you see benchmark 10 year G-Sec yield in three months?
We expect 10 year G-Sec to trade in the band of 8.40% to 8.90% in near term. The volatility is expected to remain high till the time we get further clarity on the RBI stance in next monetary policy.4. How do you see movement of corporate bond yields in short to medium term?
We expect 1 to 3 year corporate bond yields to come off from the current levels due to the good demand against the FCNR deposit receipts. We are also seeing demand from other investors as well due to the expectations of the MSF rate cut. However, there is not much appetite in long bonds as the spreads over the G-sec in this bucket are not very attractive when compared to few other asset classes such as State Development Loans. Hence, on a risk adjusted basis, we may see short bonds outperforming the long bonds in near term.
5. What kind of products would you advocate for people who are looking at fixed income kind of investing right now?
Short Term Income funds and FMPs are looking good at this point from 1-year perspective. FMPs are suitable for those investors who are looking to lock in the higher interest rates at this point without intermediate volatility. Short term income funds on the other hand is ideal for an investor who wants to get the benefit of high accrual with some amount of capital appreciation once the MSF rate is cut further.