Fund managers expect a moderate rate hike
Before RBI unveils its credit policy on Tuesday, market opinion seems to be in favour of a moderate hike.
By Gaurav Pai & N Sundaresha Subramanian, TNN |
MUMBAI: The US Federal Reserve may have left overnight lending rates untouched last week, taking into consideration the slower GDP growth numbers. But inflation in India, having touched 5.26% last week, and with credit growth showing no signs of cooling down, the scenario is quite different.
While most debt fund managers say they would wait for the fine print to be out, they already seem to have begun preparations in anticipation of a likely scenario. ET tried to find out what some of the income fund managers are up to, in view of the RBI unveiling its credit policy on Tuesday. Market opinion seems to be in favour of a moderate hike.
Momentum in credit growth showing no signs of slowing down and the rise in prices of manufactured goods will be reasons enough for RBI to hike rates, feels Ritesh Jain, fund manager, debt, Kotak Mutual Fund. “Keeping in mind a stubborn credit off take, higher M3 (broad money) growth of 19%, combined with sustained rise in prices of manufactured products, we expect RBI to adopt monetary tightening measures and step-up prudential measures with regard to housing and real estate sector.”
Accordingly, the fund house has increased cash positions across funds to enable it to take appropriate calls after the policy is out.
However, on the maturity front, fund houses are taking different calls. While Kotak will play a waiting game, DSP Merrill Lynch has reduced duration on the portfolio. Said Dhawal Dalal, VP & head — fixed income, DSP Merrill Lynch, who also sees a 25 basis points raise in reverse repo.
“Keeping in mind our expectations in busy season credit policy, we have marginally reduced our exposure to government securities,” he added. A K Sridhar, executive director & CIO, UTI Mutual Fund, is looking at a situation in favour of very moderate hike in interest rate in one or two steps.
On being quizzed whether his interest rate view is leading him to make any specific changes in his portfolio, he said, “For most of our funds we have been adding exposure to shorter term highest rated corporate papers. Overall, the maturities across the various debt funds have been reduced. Even if the interest rate marginally goes up, we do not see a major impact on our portfolio, and hence major changes in the maturity profile in the instruments is not envisaged,” he said.
While most debt fund managers say they would wait for the fine print to be out, they already seem to have begun preparations in anticipation of a likely scenario. ET tried to find out what some of the income fund managers are up to, in view of the RBI unveiling its credit policy on Tuesday. Market opinion seems to be in favour of a moderate hike.
Momentum in credit growth showing no signs of slowing down and the rise in prices of manufactured goods will be reasons enough for RBI to hike rates, feels Ritesh Jain, fund manager, debt, Kotak Mutual Fund. “Keeping in mind a stubborn credit off take, higher M3 (broad money) growth of 19%, combined with sustained rise in prices of manufactured products, we expect RBI to adopt monetary tightening measures and step-up prudential measures with regard to housing and real estate sector.”
Accordingly, the fund house has increased cash positions across funds to enable it to take appropriate calls after the policy is out.
However, on the maturity front, fund houses are taking different calls. While Kotak will play a waiting game, DSP Merrill Lynch has reduced duration on the portfolio. Said Dhawal Dalal, VP & head — fixed income, DSP Merrill Lynch, who also sees a 25 basis points raise in reverse repo.
“Keeping in mind our expectations in busy season credit policy, we have marginally reduced our exposure to government securities,” he added. A K Sridhar, executive director & CIO, UTI Mutual Fund, is looking at a situation in favour of very moderate hike in interest rate in one or two steps.
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On being quizzed whether his interest rate view is leading him to make any specific changes in his portfolio, he said, “For most of our funds we have been adding exposure to shorter term highest rated corporate papers. Overall, the maturities across the various debt funds have been reduced. Even if the interest rate marginally goes up, we do not see a major impact on our portfolio, and hence major changes in the maturity profile in the instruments is not envisaged,” he said.
When asked about his view on corporate bonds, Mr Dalal said, “We expect corporate bond spreads to stay at same level due to better spread available in oil bonds. We are underweight in corporate bonds.”
However Mr Jain said, “Corporate bonds spread at 100-120 basis points above government bonds look attractive proposition if looked at from spread point of view. Considering the corporate demand for money there might not be too much narrowing from current levels unless corporate India slows down its expansion-cum-capex plans.”
As of now, the yield on AAA rated corporate bonds stands at around 8.61%, 100 basis points higher than that on 10-year G-secs, serving as an incentive for debt funds to invest in them.
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