"For investors having a medium to long-term perspective, I would recommend dynamic products which may assist in capturing the interest rate movements,"recommends Killol Pandya, Head - Fixed Income, Daiwa Asset Management (India).
In an exclusive interview with Varsha Inamdar, Killol Pandya further said, "Investors with a medium to long-term perspective are advised to move along the duration curve in a confident but calibrated manner."
1. What is your take on the current debt market scenario?The markets are expecting liquidity to remain tight in the coming weeks with Liquidity Adjustment Facility (LAF) continue to be firmly in the negative. Non-SLR yields may remain soft. From a medium to long term perspective, we believe that the downward interest cycle has begun. Our medium to long term view is one of cautious bullishness as fiscal deficit leading to government borrowing may continue to weigh on market participation. For now, investors with short-term perspective may do well to cautiously invest part of their funds towards the longer end of the yield curve. Investors with a medium to long-term perspective are advised to move along the duration curve in a confident but calibrated manner.
2. How do you see global economic and market outlook?The global economic situation is weaker today than it was a quarter ago. The European crisis continues to weigh on market participants. The US economic recovery cannot be taken as a given fact; on the other hand India and China are showing signs of slowing down. In the context of domestic slowdown and worsening deficits, the domestic economic outlook is also affected.
3. What are the key triggers for rupee for near-term?The INR has recovered somewhat from its recent lows against the USD. Crude oil and forex flows; chiefly FII flows continue to be the chief determinants of INR value in the short term. From a medium to long term perspective, the domestic economic growth and deficit situation may have an impact on the INR.
4. What is your take on movement of G-sec and AAA bond yields? The Gilt markets have been range bound for some time now. The benchmark 10-year has been in the 8.00% to 8.25% range for quite some time now. From a short-term perspective, there seem to be no known triggers to elicit a break from this band. From a slightly longer perspective, since we are at the peak of our interest cycle, the yields may downwards. The AAA bonds have seen a gradual softening in yields on the back of a gradual increase in risk appetites of investors. However, it is interesting to note that the AAA bond curve as well as the Gilt-AAA spreads curve have been seeing an inversion from quite some time now, thereby indicating short-term bearishness.
5. What kind of products would you advocate for people who are looking at fixed income kind of investing right now?For investors having a medium to long-term perspective, I would recommend dynamic products which may assist in capturing the interest rate movements. I would also recommend debt oriented hybrid funds (such as monthly income plans) for those with slightly higher risk appetite.
6. How do you see movement of short-term instruments in near term?The market liquidity is likely to remain firmly negative in the near future. The Wholesale Price Index (WPI) inflation may not soften significantly in the near future. While growth and industrial production is slowing down, the twin deficits and INR remaining under pressure may not prompt the Reserve Bank of India (RBI) to cut rates immediately. In that context, short-term rates may remain at elevated levels though medium to long-term rates may see some easing. In other words, the yield curve inversion may persist for some more time.
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