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Government sticking close to fiscal numbers will likely improve market sentiment

01-Feb-2018

Mr.Avnish Jain-Head of Fixed Income

In an interview with Anjali Raulgaonkar from Capital Market Publishers, Avnish Jain, Head Fixed Income, Canara Robeco said, We expect RBI to remain on hold in the February policy. Hence the correction in yields may have been overdone.

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 the key driving factors for yields?

The yields have been on upswing for past few months as rising oil price have fueled concerns of higher inflation. Higher CPI on back of high food prices have further impacted sentiment. The market rates have gone up a lot in a short period of time. In short term we expect market to consolidate at current levels. The key factors for the markets will be the Union Budget and monetary policy committee outcome. Government sticking close to fiscal numbers will likely improve market sentiment. Global oil prices will also continue to impact market yields

2.What are your expectations from Union Budget 2018-19?

We expect the Government to stick to the fiscal consolidation path, though the glide may undergo some change due to likely short-term growth disruptions caused by GST implementation.

3.What is your strategy for short term funds? What is your exposure to long term funds and why?

Both short term and long-term rates have gone up considerably in past few months. We expect RBI to remain on hold in the February policy. Hence the correction in yields may have been overdone. The current levels of short term rates are attractive, considering that overnight rate is still hovering below repo rate of 6%. Inflation is likely to peak out at 5% and show a downtrend thereafter. We expect CPI to remain largely near RBI's target of 4% in the short term obviating a need for rate hikes. Further investment cycle is yet to gain a strong foothold, and higher rates may crimp any chances of pick-up in growth. Hence from longer term perspective short term funds provide an attractive investment option. Over long term we GST to be beneficial both on revenue side as well tempering inflation. This is likely positive for long term rate movements.

4.What is your advice to the investors?

The sharp rise in rates last few months provide investors good opportunity to increase allocation to debt funds, in a phased manner, depending on investment horizon and risk appetite.