In an interview with Anjali Raulgaonkar from Capital Market Publishers, Puneet Pal, Debt Fund Manager, BNP Paribas Mutual Fundsaid, We expect rates to fall further and as such our various portfolio's are positioned to take advantage of such a scenario within the respective market positioning of the funds.
Mr. Puneet Pal
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?
Over the last couple of months' yields have been coming down. The benchmark 10 yr bond yield has softened by 35bps. This rally in domestic bond yields is in sync with bond yields coming down world-wide. Domestic money market liquidity has also improved which has supported the rally. Going forward we expect the bond yields to come down by further 15-20 bps over the next 6 months.
2. What will the key driving factors for yields?
The key driving factor for yields will be improved liquidity conditions due to further open market operations by RBI, Normal monsoons leading to lower food prices and lower bond yields world wide.
3. What is your strategy for short term funds? What is your exposure to long term funds and why?
In our short term funds we are running a duration of 2.5 yrs and intend to keep the average duration in a range of 2-3 yrs. Our view is that the short end of the curve will continue to be supported by easy liquidity conditions and expectations of some more monetary easing by RBI. In long term funds we are currently running duration of 7 years as we still expect long bond yields to come down by 15-20 bps.
4. Kindly share your views on recent inflation movement? Where will the inflation curve move in near term? Why?
Inflation numbers over the last couple of months have surprised to the upside due to higher food Prices but we expect inflation to moderate going forward as food prices will likely ease on normal monsoons and commodity prices have also moderated with Oil coming down by 15% in the last 2 months.
5. What's your investment strategy?
Our Investment strategy revolves around generating superior risk adjusted returns over the long term. We endeavour to achieve this by superior asset allocation and dynamic duration management which is backed by strong macro research.
6. How often do you re-balance your debt allocation?
We review our asset allocation on a monthly basis though it can be more frequent depending upon evolving market conditions.
7. If the interest rates fall further what will be your strategy for debt funds?
We expect rates to fall further and as such our various portfolio's are positioned to take advantage of such a scenario within the respective market positioning of the funds.
8. What is your advice to the investors?
From a Fixed Income perspective , our advice to the investors is to have a 60:40 allocation to short term and dynamic bond funds respectively. We will also advice investors to invest in debt funds from an asset allocation perspective and not from a short term tactical perspective.
9. Has the inflation started to rise again? What will be the RBI's move in coming policy amidst rising CPI?
As stated earlier , we expect inflation to moderate and the recent rise in Inflation is due to seasonal factors which are likely to reverse with normal monsoons and also the fact the oil has come down by 15%. We expect status quo on rates in the upcoming credit policy.
10. When and how do you see rural consumption recovering?
About 45% of monsoon season is over and it has been normal so far. With good monsoon we expect rural economy to do well, coming off the base of two consecutive poor monsoon. The rural economy is likely to perform well in near future . The impact on volume growth may be visible 3QFY17 onwards, when the cash flow improves.
11. Foreign investors are shying from Indian markets. How do you explain it even after Prime Minister Narendra Modi's 29 February budget sparked a rally in bonds and the rupee?
FII Inflows into debt have been quite robust over the last couple of years. FII flows into debt have been USD 34 bn (approx) since the beginning of the calendar year 2014 much more than the Equity Flows of USD 21 bn (approx). Thus the FII flows have been quite robust for the last 2-3 yrs and it is important to see the overall trend , which is quite good.