13 Apr 2023
The current fiscal 2023-24 has begun on an optimistic note. The Reserve Bank of India (RBI) recently announced the first monetary policy of the financial year. They have unanimously kept the key repo rate unchanged at 6.5 per cent. The central bank has also revised headline inflation marginally downwards to 5.2 per cent from 5.3 per cent for the current fiscal. Moreover, the GDP has been revised upward from 6.4 per cent to 6.5 per cent. Both these revisions are a bit of a surprise to the markets. RBI has attributed the decision to pause interest rates to global financial instability. They remain focused on core inflation and have explicitly mentioned that the pause is only for current policy.
Looking at the global developments. Federal Bank in the United States has hiked rates despite financial instability and will probably hike the rate in the next policy from 5 per cent to 5.25 per cent. They are still negative on real rates and will keep it higher for longer. This is clearly against market expectation which is expecting a cut as soon as in the next policy. If we look at the situation in cricket parlance, RBI is just like a seasoned batsman who watches a few overs before deciding on a shot.
View of Kotak Mutual Fund:
As highlighted earlier, we are somewhere near peak rates, and we maintain the view. You may be wondering if floating rate bonds (FRBs) have been effective. It was effective and gave portfolios reasonable safety in the rising interest rate scenario. Given the long pause in policy rates, the ‘effective carry’ will be attractive for FRBs. As mentioned earlier, we will keep converting our FRBs into fixed bonds. Post policy, the curve for SDL (State Development Loans) has steepened a bit; hence 2028 maturity bonds are better than 2026 and 2027. Overall, 2030 to 2033 maturity bonds may offer the best positions for long-term investors. We recommend investors invest as per the investment horizon. However, they can consider long target maturity funds, actively manage duration strategies in medium to term and invest such as investment in dynamic and gilt funds.
(Abhishek Bisen is Head of Fixed Income, Kotak Asset Management Company Ltd)
The document includes statements/opinions which contain words or phrases such as "will", "believe", "expect" and similar expressions or variations of such expressions, that are forward looking statements. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with the statements mentioned with respect to but not limited to exposure to market risks, general economic and political conditions in India and other countries globally, which may have an impact on investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc.
The information contained in this (document) is extracted from different public sources/KMAMC internal research. All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication. This is for the information of the person to whom it is provided without any liability whatsoever on the part of Kotak Mahindra Asset Management Co Ltd or any associated companies or any employee thereof. Investors may consult their financial advisors before making any investment decision. Past performance may or may not be sustained in future.
These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY