Fixed Income Update

Quick Take:

  • In the June policy RBI keeps rates & policy stance on hold as expected.

 

  • If core inflation undershoots RBI’s expectation on a sustained basis, there can be a change in RBI stance.

 

  • We expect liquidity to remain in surplus to neutral zone for the next one year. Hence we believe that the levers have shifted to a play on accrual and liquidity.

 

  •  Investor should look to invest in short to medium term funds as a core portfolio allocation. Investors who wish to participate in long bonds can look to do so through dynamic bond funds.

Bond markets rallied during the month (15 bps on a point to point basis) on the back of lowering CPI print and a dovish RBI. In its June policy, RBI kept rates on hold as was widely expected signaling possible rate cuts if inflation undershoots target. RBI further marked down inflation expectation in H1 to 2-3.5% and H2 to 3.5-4.5% and a year- end estimate of 4%. The Monetary Policy Committee saw it’s first dissent in this policy. Five members were in favour of the monetary policy decision, while Dr. Ravindra .H. Dholakia was not in favour. Citing that inflation has fallen below 4 per cent only since November 2016, the MPC remained focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis keeping in mind the output gap.

 

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Portfolio data as on 30th Jun, 2017.

Disclaimer: Past performance may or may not be sustained in the future. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).


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