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We believe that over the long term there is a definite room to grow amongst global stagnancy
01-Oct-2017 (21:06)
Fixed income continues to be driven by both local and global events, though local factors have far more weightage
30-Sep-2017 (20:30)
With low probability of rate cuts, developments over fiscal deficit will drive the market in near term
06-Nov-2017 (11:38)

Mr. Pankaj Pathak
In an interview with Anjali Raulgaonkar from Capital Market Publishers, Pankaj Pathak, CFA - Fund Manager-Fixed Income - Quantum AMCsaid, Although the valuations are attractive in longer segment, at present there is a very high uncertainty in the bond market. Broadly, we expect bond yields (10year benchmark bond) to trade in the range of 6.60%-6.90% taking cue from fiscal developments.

Excerpts:

  1. What are your views on fixed income market? How have the yields moved and which direction you see them moving in near to mid-term and why?
  2. Indian bond yields have moved up by around 30 basis points (100 basis point is equal to 1%) across the curve over the last three months. Multiple factors have contributed to this up move in yields. RBI's Monetary Policy Committee came across as inflation hawk and did not pay much heed to the growth slowdown. There had been repetitive media reports about fiscal stimulus and government not meeting the fiscal gap target. Global yields were on up move as FED started withdrawing the monetary stimulus. All these factors and the geo political tension in Korean peninsula caused a negative sentiment in bond market in the last three months.Now the bar for further rate cut is very high. At current levels, bond valuations are attractive but uncertainty about fiscal and inflation risk may play on investors' minds which could keep the bond yields elevated for some time.

  3. What will be the key driving factors for yields?
  4. With low probability of rate cuts, developments over fiscal deficit will drive the market in near term. Now after the announcement of bank recapitalization bond, the uncertainty in bond market has increased further. The finance ministry has not yet disclosed the modality of these bonds which leaves us with many possibilities about its impact on fiscal deficit and market demand-supply. Going forward, market will look out for any detail about the structure of these bonds and guidance about government's fiscal plans.

  5. After the RBI policy rate meet, where do you see the bond yield moving (long-term bond yields and short-term bond yields both)?
  6. Although the valuations are attractive in longer segment, at present there is a very high uncertainty in the bond market. Broadly, we expect bond yields (10year benchmark bond) to trade in the range of 6.60%-6.90% taking cue from fiscal developments.     

  7. SeptemberCPI and WPI have inched up. Is it the beginning of rise in inflation? Why?
  8. Inflation is likely to move northward and print above 4% mark by Q1 2018 primarily due to adverse base effect and statistical adjustment of HRA increase under the 7th pay commission. We expect that CPI will remain within the RBI's target band of 4% (+/-) 2% over the medium term as the effects of supply side structural reforms will be more visible over the period. The new monetary policy framework with inflation as policy anchor added discipline to the inflation targeting process. This will encourage the RBI to remain proactive in tackling inflation risks.       

  9. What measures RBI will take to mop-up excess liquidity? What will be its impact on yields?
  10. RBI has been relying on term reverse repos and OMO sale of government securities to absorb the excess liquidity from the banking system. Usually the cash demand increases during October-December quarter and we are witnessing the similar phenomenon this time as well. The currency in circulation has increased by INR 580 billion during this month up till 20th October. We expect the liquidity situation to normalize by the first quarter of 2018. RBI may stop conducting OMO sales from next month.   

  11. What is the ideal time frame which an investor should look at while investing in a short-term fund?
  12. Given the substantial tax advantage, investors are better off investing in debt funds for over 3 years. This will also help in reducing the uncertainty of returns coming from volatility in market interest rates.      

  13. What's your investment strategy?
  14. At Quantum, we follow a team based portfolio management approach. We conduct proprietary research for our investment decisions and follow a top down research and investment process.

    Although we believe that further rate cuts may not come through, still considering the attractive valuations we are maintaining above average maturity profile in the Quantum Dynamic Bond Fund portfolio. We remain vigilant about developments on fiscal front and actions of global central banks.  

  15. How often do you re-balance your debt allocation?
  16. We follow a dynamic approach in taking investment calls based on our view on interest rate. Thus the re-balancing of portfolio depends on movements in market rates and our reading of the same.

  17. What is your advice to the investors?

It has been a significant run in the bond markets since August 2013. Many of the bond funds have delivered double digit returns during this period. But investors should lower their return expectations from bond funds as capital gains will not be the driver of returns going forward. As the purpose of debt allocation for many investors is to provide stability to the overall portfolio, investors should also consider the possibility of capital losses when investing in longer maturity bond funds (if bond yields start rising).

We suggest that investors looking to make a lump sum investment to stagger their investments
28-Oct-2017 (15:49)
We believe that there will be a long pause in RBI's rate action and this will lead to bond yields remaining in a very tight range in the near term
01-Sep-2017 (11:05)
We believe that Indian equity is a very promising asset class to invest in, over the medium term, despite the recent smart run up in the market
01-Aug-2017 (14:52)
One has to be selective in identifying the companies /sectors with high growth potential
05-Jul-2017 (18:30)
Match the investment horizon and risk appetite to the scheme selection
08-May-2017 (14:53)
In India ETFs are still at a nascent stage and the retail participation is very low
27-Mar-2017 (14:06)
Earnings recovery would be important for the markets going ahead
02-Mar-2017 (14:47)
Given firm crude prices and rising commodity prices, we expect inflation to go up to 4%-4.50% in H1FY18
28-Feb-2017 (12:25)
Demonitisation has stalled the uptick in consumption cycle
31-Jan-2017 (13:21)
We expect inflation to undershoot RBI's target of 5% by March 2017
09-Dec-2016 (17:30)
In the medium to long term, the Indian equity market will be primarily swayed by the trajectory of earnings growth
08-Dec-2016 (16:41)
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