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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)
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)

Mr. Pankaj Pathak
In an interview with Anjali Raulgaonkar from Capital Market Publishers, Pankaj Pathak, Fund Manager-Fixed Income, Quantum Mutual Fund, said, We expect CPI will remain within the RBI's target band of 4% (+/-) 2% over the medium term as the effects of supply side structural reforms implemented by the government will be more visible over the period.

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? What will be the key driving factors for yields?
  2. India had witnessed a remarkable disinflation in the last four years with headline consumer price inflation falling from double digit prints in late 2013 to near the lower bound of RBI's target range of 4% +/-2%. This resulted in more than three years long monetary easing cycle with RBI reducing the policy rate by 200 basis points (100 bps is equivalent to 1%) and still be able to maintain high real rates to attract significant foreign capital flows. Fixed Income market reflected the similar positive move with the bond yields falling from highs of around 9% to 6.5% in the last four years.

    Now with inflation showing some signs of firming up from here as increased pay packages of Central Government employees and higher cash in the hands of farmers due to series of farm loan waivers turning into consumption demand. The commodity prices are also showing signs of bottoming out and are likely to rebound as global growth picks up. RBI had also acknowledged these signals and changed its policy stance in the February policy from Accommodative to Neutral. 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. In medium term, bond market will look out for supply side structural reforms in domestic economy and will also monitor the normalization of monetary policy in developed markets.

  3. After the RBI policy rate cut, where do you see the bond yield moving (long-term bond yields and short-term bond yields both)?
  4. We expect that we have already seen the last rate cut in this cycle and that RBI is likely to keep rate on hold for some months. The Bond market may remain range bound near 6.5% levels (yield on 10 years benchmark paper) in the short term and await domestic and global trends to determine its future trajectory. This indicates that there is limited upside for bond prices from here.

  5. July CPI and WPI have inched up. Is it the beginning of rise in inflation? Why?
  6. The recent drop in inflation is to a large extent a result of the after-shocks of demonetization, which is likely to reverse in the months to come. This could lead the headline CPI inflation to above 4% mark by Q12018. However, the normal monsoon season and the good Kharif sowing of key crops does suggest that food production will keep tap on the upside in inflation.

    We expect CPI will remain within the RBI's target band of 4% (+/-) 2% over the medium term as the effects of supply side structural reforms implemented by the government will be more visible over the period. Further, the new monetary policy framework with inflation as policy anchor has added discipline to the inflation targeting process and will encourage the RBI to remain proactive in tackling inflation risks.

  7. What measures RBI will take to mop-up excess liquidity? What will be its impact on yields?
  8. The excess liquidity with commercial banks post demonetization remained a big challenge for RBI and huge foreign capital inflows in recent months further compounded the problem of managing surplus liquidity. Cash withdrawals from banks are also slowing down as much of the re-monetization has already happened. With limitation on issuing MSS bonds, RBI had is relying on term reverse repos and OMO sales to manage this problem of plenty. However, in our view, the pace of OMOs are too slow considering the extent of liquidity surplus. The RBI's newly proposed liquidity tool Standing Deposit Facility is still waiting for government nod. We expect that the liquidity condition will remain in surplus in the months to come and at the current pace these liquidity absorption measures will not affect the yields to any notable extent. However, if RBI steps up pace of OMO sales, we may see some pressure on shorter maturity bond yields.

  9. What is the ideal time frame which an investor should look at while investing in a short-term fund?
  10. Given the substantial tax advantage, investors are better off investing in debt funds for over 3 years.

  11. What is your strategy for short term funds? What is your exposure to long term funds and why?
  12. For fixed income exposure, we offer Quantum Dynamic Bond Fund (QDBF) which has the flexibility to change the portfolio characteristics (within the investment policy framework) according to interest rate scenario. QDBF invests primarily in government securities or in top rated PSU bondsand by its design the fund can take a form of long term debt fund or short term debt fund depending on the interest rate view. Our endeavor is to manage the interest rate risk on behalf of the investors so that they don't need to change their fixed income allocation when interest rate changes.

  13. What's your investment strategy?

It has been a significant run in the bond markets since August 2013 with Indian bonds returning in double digits. But investors would do well now to lower their return expectations from bond funds as capital gains will not be the driver of returns going forward. Since the purpose of debt allocation for many investors is to provide stability to overall portfolio, while investing in debt funds investors should also consider the possibility of capital losses.


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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