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The tone of the upcoming policy is one of the key factors that will determine near term trajectory of rates said Lakshmi Iyer, chief investment officer (Debt) & Head Products, Kotak Mahindra Asset Management Company in an interview to Money9.
June saw flattish net sales in fixed income. What is your outlook when it comes to macro-economic fundamentals and economic sentiment for the next few months?
The biggest concern today from a macro point of view is the inflation data. We have seen 2 back-to-back months of a consumer price index (CPI) being above 6% (the threshold for RBI). That has led to apprehension with respect to rate hikes in the near term. We are of the view that the Reserve Bank of India (RBI) may want to wait and watch for more durable data points before pulling the plug on rate hikes. Liquidity normalisation could be the first step towards that. Hence rates could be range-bound in the near term.
What are the near-term factors that can change or affect the course of debt mutual funds in the coming times?
The tone of the upcoming policy is one of the key factors determining near term trajectory of rates. The CPI conundrum continues – is it a one-off or an extended high-inflation trajectory remains the key question on markets minds. There is over Rs 9 lakh crore of system liquidity. Will RBI increase the quantum of variable rate reverse repo (VRRR) and enhance the tenor? These are some of the key factors that will likely shape interest rate expectations in near future. For now, markets seem to have discounted most negatives, hence there may not be whipsaw movements on rates for now
What are the options for the investors who are looking to invest in short to medium-term debt investment solutions?
In the current environment, where interest rates have bottomed out but this could be a hibernation phase before rate hikes occur. Hence low to moderate duration fixed income portfolios could be a possible investment solution.
How can investors navigate a possible rising rate environment going forward?
Fixed income has solutions suited to most rate environments. The key to bear in mind is to stay invested across the intended investment tenor – irrespective of interim volatility. As interest rates are likely to remain range-bound buoyed by ample liquidity, focus on portfolios with high-quality assets.