CPI inflation to stay above 4%; RBI rate cuts may be pushed to FY21: Tata MF debt head Nagarajan

Rising food prices, led by vegetables is expected to keep the Consumer Price Index (CPI) inflation above 4 percent in the current financial year until March, said Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund.

“Owing to CPI inflation not coming down to below 4 percent, rate cuts, if it happens, will be pushed into the next financial year,” Nagarajan said.

India's retail inflation or Consumer Price Index (CPI) stood at 5.54 percent in November, according to data released by the Central Statistics Office (CSO) on December 12.

He expects gross borrowing program for the next financial year (FY21) to be around Rs 8 lakh crore as against a total planned borrowing of Rs 7.1 lakh crore in FY20.

However, Nagarajan feels there will be supply pressure to keep the bond yields elevated at the longer end of the yield curve, despite RBI doing OMOs (Open Market Operations) to bring yields down.

He expects the GDP growth to be in the range of 5-6 percent. Nagarajan further pointed out that liquidity is expected to remain easy to support growth even though CPI inflation will remain elevated.

In such a scenario, Nagarajan recommends investments in accrual products which are of high quality to get running yield of the portfolio.

“Investors can look at investments in short-term and banking and PSU funds,” Nagarajan said.