"The absolute yield levels are high today, and as rates come
down, longer-duration funds are expected to be attractive on
account of high accruals and mark-to-market gains," Parijat
Agrawal, head of fixed income at the fund house that manages
about 100 billion rupees ($1.22 billion) of assets, told Reuters
in an interview.
Investors with surplus cash and an appetite for risk should
buy longer-duration papers to lock in the yields, Agrawal said.
India's 10-year benchmark 7.26% 2032 bond yield was at 7.41%, while the liquid 14-year 7.41% 2036
papers was at 7.48%.
Agrawal expects the benchmark yield to trade in the
7.35-7.50% band in the near term and predicts a 25 bps rate hike
by the central bank in April, taking the terminal rate to 6.75%,
which he said could be the peak in the current cycle, barring
any significant inflation shocks.
With the bulk of rate increases now behind, the fund manager
said it is prudent for investors to opt for funds that have an
average duration of five to eight years in which they should
stay put for at least two to three years for good returns.
With time, investors would benefit as bonds roll down when
the initial high interest rates ease, he said. "Duration from
5-year to 15-year looks attractive currently based on one's risk
appetite."
Meanwhile, Agrawal expects the Reserve Bank of India to
start lowering rates by the end of the next financial year to
avoid a significant impact on growth from a tight monetary
policy.
"As and when growth starts to slow down, the expectations of
a rate cut would drive the yields lower, especially on the
longer end, benefiting investors," Agrawal said.
The RBI has raised repo rate by 250 bps this fiscal year to
6.50%. Growth in the October-December quarter was at a
lower-than-expected 4.4%, even as inflation remained steep.
Retail inflation is expected to ease to 6.35% in February
from 6.52% in the previous month, still above the RBI's upper
threshold, according to a Reuters poll of economists.
($1 = 82.0050 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Swati Bhat and
Dhanya Ann Thoppil)
By Dharamraj Dhutia
MUMBAI, March 10 (Reuters) - Indian investors should
start investing in longer-duration government bonds and funds
that could offer better returns in the medium term, a fixed
income official at Union Asset Management said.
Yields on long-term papers have risen more than 100 basis
points in the 14 months to February as the central bank embarked
on a rate hike cycle.
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