In its monetary policy review on Wednesday, the RBI also kept the interest of the general public in mind and called for fuel tax cuts. Key measures included a quarterly OMO schedule which should help manage the yield curve and the massive borrowing schedule, with Rs 1 lakh crore expected for the first quarter of FY22. The RBI expects this. inflation increases slightly in FY 22, although food inflation is easing. .
Thanks to actions taken by RBI, which included an infusion of funds into the market through various tools, yields on benchmark 10-year government securities fell by more than 6 basis points.
This should make investors in debt funds happy, as any drop in yields means that the net asset value (NAV) of the funds will rise, as they are inversely related. But those who are not invested in debt funds might consider safer options and should keep their expectations low.
“The policy supports long-term interest rates, with some impact at the short end due to the longer liquidity absorptions under the liquidity management program. We will continue to focus on the Bank and PSU, Corporate Bonds and Dynamic Bonds fund categories after today’s policy, ”said Kumaresh Ramakrishnan, CIO for Fixed Income at PGIM India Mutual Fund.
Financial planners say golden funds and corporate bond funds can be a good bet for those with a longer investment horizon, while short-term debt funds are better suited for those with a longer investment horizon. have a horizon of 1 to 3 years.
“The G-Sec have been good for over three years. It still makes sense to be in short term debt funds or low duration funds because even if they say the position will remain accommodative, but at some point it will change if inflation remains high. So there’s no point in taking risks if I’ve been invested for less than three years, ”said Lovaii Navlakhi, Managing Director and CEO of International Money Matters.
Some analysts have warned investors not to expect the same high returns on debt funds they’ve earned over the past three years when interest rates come down. But still, for those looking for security, debt funds make sense.
“When the direction of interest rates is unclear – yields have tried to climb, but RBI is trying to keep them lower – if you have a shorter time frame, stick to funds at a very low level. short and short term. where yields have definitely increased. Even for periods of more than three years, you have to have a scale strategy, that is, hold a certain amount in very short and short term funds and rest in bond funds. ‘businesses, so that any volatility can be reduced,’ said Vidya Bala, founder of Prime Investor.
Rising short-term returns
Short-term rates are expected to rise, however. This could have a negative impact on the net asset value of the rate sensitive funds that initially hold these securities. But ultimately, as these funds add higher rated coupons, they might be the first to reap the rewards of higher returns.
“The RBI’s measures should be able to counter the unfavorable global environment of rising yields and rising commodity prices. The increase in long-term 15-day repo transactions could increase one-year yields by 10 to 15 basis points and remain at those levels, ”said Murthy Nagarajan, head of fixed income at Tata Mutual Fund .
RBI described a heavy borrowing program, which left many fund managers on hold as the latest auctions did not go well and the bond market revolted after RBI tried to cap stock yields. government.
“Given the heavy borrowing program, it will be interesting to see how investors bid at auctions, as they have lost money and global yields are on an upward trajectory. RBI also said that she did not have a specific level of performance in mind when doing OMO. So it will be up to market players to determine the levels at which they are comfortable buying in these auctions, ”Nagaraj said.
The first bimonthly monetary policy for fiscal 2022 maintains the status quo on all key rates. The MPC also reiterated an “accommodating stance” on rates and “excess liquidity” to help the economy return to a sustainable growth path.
“Overall, there was not much surprise or novelty in the monetary policy statement. RBI has taken the wait-and-see approach as the economy stabilizes in a heightened pandemic situation. We expect the bond market to follow suit, that is, to take a wait-and-see approach to the changing liquidity and inflation situation, ”said Unmesh Kulkarni, Managing Director and senior advisor to Julius Baer India.
He expects the 10-year G-sec to trade in the 5.9-6.3% range in the near term. “Yields could see some near-term relief due to pandemic risks to growth, but could see a further upturn in the second half of FY22 once the pandemic situation subsides and the focus has returned to the economic recovery, ”Kulkarni said.
Survey market: NBFC at a glance
Analysts believe that additional measures such as the extension of the TLTRO online system and additional liquidity support of Rs 50,000 crore to Nabard, Sidbi and NHB are positive for HFCs, NBFCs and smaller MFIs.
“The main beneficiaries of these measures could be Can Fin Homes, Repco Home Finance, Home First Finance, Shriram City Union Finance and MFIs like Credit Access Grameen and Spandana Sphoorthy,” said Amar Ambani, head of institutional equity research. at YES Securities.