Market is struggling to absorb G-Secs supply: R Siva Kumar, Axis Mutual Fund

In a chat with ETNow, R Siva Kumar, Head-Fixed Income, Axis Mutual Fund, talks about the impact of rupee weakening and high oil prices on inflation.

Edited excerpts:

What is your own assessment on what oil prices would do to inflation? How would that get translated in the RBI commentary when it comes to rates?


RBI will going to be very sensitive to the trajectory of inflation and of course the oil price feeds into that. But the oil price has two effects, one is the direct inflationary effect and the second is through the rupee depreciation. In other words, we are facing a double whammy of sorts.

Therefore, both the factors -- oil and rupee -- will aid RBI’s hawkishness, further resulting in significant pressure on yields. However, given the selloff in commodities overnight, as long as these remain under pressure, we will see yields elevated for quite some time.

Do you see that this is a good buying opportunity in bonds?

The market is struggling to absorb G-Secs supply as two-year G-Secs failed to sell completely last Friday. I would expect the spread to remain high. For instance, if I were to simply buy on the basis of yield (which is another way of looking at value ), why should I buy a 10-year bond when even a five or four-year G-Sec is also giving a rate of 7.67-7.70 per cent. Therefore, the longer end of the curve, especially the 10-year and beyond, does look not very attractive in comparison to the shorter one from value trade perspective.