Ten-year paper an excellent buy 8.10-8.15: DSP ML

Dhawal Dalal, Fund Manager at DSP ML said the market participants are waiting for the evolution of further impact on inflation and revision of fuel prices.

He adds that the benchmark ten year looks like an excellent buy at around 8.10-8.15 and the risk reward ratio could be in favour of the investor.

Excerpts from an exclusive interview with Dhawal Dalal:

Q: What kind of lows are you looking for, for instance for the ten year, do you expect that we are going to see 8.15 in yield terms of even 8.25 in a couple of months?

A: Lately, we have seen that the volume in the bond market has substantially declined and market participants are keenly watching the evolution of further impact on inflation as well as whether fuel prices are going to be revised in the near future. Having said that, I think in a thinly traded market, two point movement upward or downward cannot be ruled out. But from the technical perspective, benchmark ten year looks like an excellent buy at around 8.10-8.15 and at that point of time, the risk reward ratio could be in favour of the investor.

Q: You do not expect therefore that there could be a fuel price hike of the order mentioned by the petroleum secretary. The expectations are of Rs 5 petrol price and Rs 3 diesel price hike, if that happens inflation could look like close to 9% as what some economists tell us and then of course, there is the fiscal deficit problem which Dr YV Reddy after a long time has highlighted rather emphatically - a bulk of oil bonds coming into the system and appropriating money or pushing up the yield curve. In the next quarter, you do not expect therefore 8.25 at all on the anvil for the ten year?

A: All these factors are pretty much priced in at the given point of time, and whatever Dr Reddy has said, I think market participants are pretty much aware of that. Having said that, at the same time market participants are aware that there is very little that government can do except for revising fuel prices upwards and that is where I think market will wait to see the quantum of the fuel price being revised, either only the petrol prices or both petrol and diesel and what impact it will have on the WPI going forward because both of them have different weightage on the index.

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