HDFC Mutual Fund says risk-reward in fixed income market reasonable

With the 10-year government bond yield rising 38 bps rise since January and encouraging developments in inflation, rupee, US interest rates and improved clarity on GST, and monsoon, HDFC Mutual Fund believes that the risk reward in fixed income markets is reasonable now.

The fund house in a note on fixed income market stated that such favourable economic scenario makes products like income, dynamic and gilt funds a reasonable bet once again.

10 year yields of 6.97 GOI 2026 had moved higher by 38 bps since Jan 2017 to 6.74 percent currently. From the bottom of 6.18 percent in Nov 2016, the yields were up 56 bps. The yield for the same paper peaked at 6.98 percent in May 2017.

Indian unit appreciated nearly 4.61 percent from 67.865 in January 2017 to 64.36 currently.

With FDI continuing to be higher than the current account deficit, the fund house expects Indian rupee to remain stable with an upward bias in the medium term.

RBI had changed its stance to neutral in its February policy due to the uncertainty driven by outcome of monsoons, roll out of GST and global factors such as US interest rates.

In the last few months, the fund house has been cautious in its approach and recommends investment in medium/short duration and higher yielding credit oriented products.