Invest in debt, equity for long term, INR will rise: SBI MF

After the RBI announced various measures to suck out excess liquidity from the economy, Navneet Munot, chief investment officer, SBI Mutual Funds says one has risk appetite, then it is right time to invest in bonds and equities from the longer-term perspective.

Munot is of the view that the RBI's moves are extremely short-termed in nature.

"When call rates spike or the liquidity is extremely tight, they do not sustain for too long and the rupee probably will start appreciating and some of these measures may get reversed," adds Munot in an interview to CNBC-TV18. Below is the edited transcript of Munot's interview to CNBC-TV18. Q: As CIO, what do you see now a decimation of fixed income funds, if an investor were to ask you where would you ask him to put his money? Which one?
A: We have seen bigger crisis than what we are seeing today but it is just a day. If one goes back in history and sees whenever the Reserve Bank of India (RBI) has reacted to the volatility, whether in 1997 or in July 2008, these moves have been extremely short-termed in nature. So, when call rates spike or the liquidity is extremely tight, they do not sustain for too long and the rupee probably start appreciating and some of these measures may get reversed.
What the RBI has increased is the penalty rate not the basic policy repo rate. So, within few days, market should adjust to the new reality and I definitely see this as a buying opportunity rather than getting out of the bond funds. Q: What about banks, you track banks closely, what could the impact be on bond portfolios for banks and how would you approach this sector now?
A: Obviously, the 10-year bond yield has moved up by 1 percent, corporate bonds have moved up even more, so there is going to be hit on the investment book side. With rates going up, the liquidity tightening is going to impact the margins, the rate at which the banks are going to borrow the short-term money and deposit rates. It will take time for deposit rates to fall which everybody was kind of expecting, so it will start putting pressure on margins. Also, in an economy which is slowing down considerably, the index of industrial production (IIP) is negative 2 percent when things were supposed to bottom out and a large part of the corporate India is under stress and making liquidity tight, making money tight can add to more. Q: What are you recommending investors to invest into at this point of time?
A: If you have a risk appetite, if you have a longer horizon, then these are precisely the points which offer you a buying opportunity both on the equity side and the debt side.

We should have been in a substantially accommodative monetary policy but barring what has happened in the rupee, it is just a very short-term phenomenon. At some point in time, I am pretty convinced that the rate cutting cycle will come in soon.

Hence, if you have a slightly longer-term horizon and can take this short-term volatility, obviously the bond fund is good. Equities are good if one takes slightly longer-term horizon.
Maybe this is the first reaction but I think the next reaction from the government would be more policy measures in the areas of foreign direct investment (FDI) and probably to clear the logjam on the investment side. So, I would recommend taking a longer-term view and investing both in equity as well as fixed income.