•
Yield curve flat - Duration plays
can be played in the 2-4 year
segment.
• Elevated levels can be used to
lock in longer term rates.
•
Spreads between G-Sec/AAA
& SDL/AAA have seen some
widening.
•
Credits continue to remain
attractive from a risk reward
perspective give the improving
macro fundamentals.
► Inflation & Rates - RBI commentary keenly awaited: India
remains a key beneficiary from falling oil prices. The ripple
effects of lower
commodity prices are
likely to help sooth
inflation in the latter half
of the year. Domestic CPI
for the month of February
stood at an elevated 6.4%. Initial signs of an inflation cool off
have been witnessed in the US with inflation core PCE falling
below 5%. Prices of Timber and the metal complex have
already retraced to pre-covid levels signaling a stabilization of
prices in the aftermath of global supply chain issues. RBI
comments post policy on April 6th are likely to be triggers for
market movements for the month.
► MF Taxation Change - Life after Mar 31st doesn't change
much: The Finance ministry made some surprise amendments
to the Finance Bill 2023 before passing it through both houses
of parliament. Amongst them were removal of LTCG benefits
to select categories of mutual fund schemes. For investors,
while the new taxation structure may seem detrimental in the
near term, the market linked nature of the products and single
point taxation at the time of redemption make debt mutual
funds relatively attractive as compared to comparable fixed
savings instruments.
► Positive Comments from the US Fed - US Rates drop: The US
Fed raised rates by 25bps as expected. The commentary
coupled with tightness in system liquidity due to the banking crisis were seen as indications of a pause/peaking interest
rates. US bond yields dropped significantly through the month
with maximum gains coming in the 2-4-year segment (75-
80bps drop). Positive inflation data trends, make the case of
incrementally stable rates stronger.
The current curve remains very flat with everything in corporate
bonds beyond 1 year up to 15 years is available @7.5-7.80%
range. We expect the curve to remain flat for most part of 2023
with long bonds trading in a range for most part of 2023 (7.25-
7.75%). Falling CPI, weaker growth and strong investor demand
would keep yields under check despite high G-Sec supply next
year.
We retain our stance of adding duration to portfolios in a staggered manner given that a large uncertainty driving rates and duration calls in now out of the way. For investors with a medium term investment horizon, we believe the time has come to incrementally add duration to bond portfolios.
For investors with a medium term investment horizon, we believe the time has come to incrementally add duration to bond portfolios. For investors with medium term investment horizon (3 Years+), incremental allocations to duration may offer significant risk reward opportunities. Spreads between G-Sec/AAA & SDL/AAA have seen some widening over the last month which could make a case for allocations into high quality corporate credit strategies. Lower rated credits with up to 18-month maturity profiles can also be considered as ideal 'carry' solutions in the current environment.
We retain our stance of adding duration to portfolios in a staggered manner given that a large uncertainty driving rates and duration calls in now out of the way. For investors with a medium term investment horizon, we believe the time has come to incrementally add duration to bond portfolios.
For investors with a medium term investment horizon, we believe the time has come to incrementally add duration to bond portfolios. For investors with medium term investment horizon (3 Years+), incremental allocations to duration may offer significant risk reward opportunities. Spreads between G-Sec/AAA & SDL/AAA have seen some widening over the last month which could make a case for allocations into high quality corporate credit strategies. Lower rated credits with up to 18-month maturity profiles can also be considered as ideal 'carry' solutions in the current environment.
Source: Bloomberg, Axis MF Research.
