Jan 20, 2017 01:39 PM IST IST | Source:

Peerless MF expects 50 bps point rate cut by RBI in next 6 mnths

Peerless Mutual Fund expects RBI to cut repo rate by 50 bps over the next two quarters given the inflation-growth dynamics where inflation is expected to be well within RBI‘s target of 5 percent by March 2017, says Killol Pandya, head-fixed income, Peerless Mutual Fund.

Peerless Mutual Fund expects RBI to cut repo rate by 50 basis points (bps) over the next two quarters given the inflation-growth dynamics where inflation is expected to be well within RBI’s target of 5 percent by March 2017, says Killol Pandya, Head-fixed income, Peerless Mutual Fund.

“Inflation is going to be comfortable in the coming months…under 5 percent by end of March 2017,” Pandya said in an interview to Moneycontrol.

“Chances are very bright that it will be under the tolerance zone of RBI; we also don’t expect crude to go beyond USD 60 a barrel. So, interest rates will be lower. We are expecting 50 bps in the next 6 months,” he added.

Further, Pandya said that debt market will seek to get cues from the Union Budget, and particularly watch out if government is able to achieve its fiscal deficit target.

“So far, it was an orderly year as far as the fiscal is concerned. We will be happy if government manages to achieve the fiscal deficit target of 3 percent despite recent demonetisation move,” Pandya who likes reading fiction books.

The government will try and pass on the benefit of the reduced fiscal deficit to the economy either by reducing fiscal deficit for FY18 or increasing the spend or both.

He expects government’s FY18 borrowing calendar to be around Rs 5.5 trillion. “We have to bring in to account that the size of the economy is also growing. If you are growing at thumping 7 percent than what you were growing last year then 5.4 trillio in absolute numbers should be the borrowing,” Pandya said who enjoys playing cricket more than watching.

In 2016, the critical change in the bond market was that the market liquidity moved to structurally positive from being structurally negative and now he does not expect the positive liquidity scenario to unwind itself in a hurry.

“A considerable amount of money will not come back in to cash. Even if it’s in cash, it will find it’s way to bank and we will have less amount of cash in the economy. So more cash in the banking system which is good for us,” Pandya said who admires Nassim Taleb as his books teaches tenacity.

The fund house envisages the 10-year benchmark government bond to trade in the narrow band of 6.30-6.40 percent yield in the near term. “In absence of any further drivers this is where the benchmark bond will be but there will be volatility. It may go to 6.40 percent and touch back to 6.30 percent,” Pandya said, who is currently reading a book on medieval Indian history called The Age of Wrath by Abraham Eraly.

As the system is flushed with liquidity there is dearth of certificates of deposits issuances which will keep the yields on short term money market instruments benign, said Pandya.

“CD volumes are down. Banks don’t need to raise funds as they have lots of money and secondly credit pick up is not that great. Banks are not on full on lending mode as yet,” Pandya said who likes reading books of stock investor Peter Lynch .

He further added that commercial paper issuances are healthy as corporates are actively issuing CPs and the fund house is also subscribing to these issuances.

CDs and CPs are used by banks and companies, respectively, to borrow short-term money. Yields have been trending down since last two months on the back of sufficient liquidity and a demand-supply mismatch.

The fund house has been receiving inflows in their short-term funds, ultra short term funds and dynamic bond funds and the inflows are largely from ultra high net worth individuals, high net worth individuals and medium and small enterprises.

Speaking about his strategy in dynamic bond funds, Pandya said he is taking few tactile steps to cope with the volatility and uncertainty. “Volatility has forced us to be little fickle and not take any one duration call,” Pandya said.

“In the dynamic bond fund we have completely abundant corporate bonds and running an entire G-sec and (treasury) bills strategy and the reason is that I can unwind in a dime,” Pandya added.

Among government securities, the fund house is investing in three-,five-year and 15-year bonds.

He advises investors to invest in dynamic bond funds to the take advantage of volatility

“If you are invested for a decent period of time in a dynamic bond fund then a good fund manager will end up making good money,” Pandya said.

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