MUTUAL FUNDS

As inflation eases over the next few months we expect RBI to increase focus on stimulating growth<
20-Dec-12   14:06 Hrs IST

Mr. Gautam Kaul

Markets expect RBI easing by 50 - 100 bps on repo rate in calendar year 2013 starting with January policy. If that materializes, we see 10Y G-sec in the range of 7.80 - 8.10 in Q4FY13. says Gautam Kaul, Fund Manager - Fixed Income at IDBI Asset Management.

We at Capital Market interacted with Gautam Kaul to now about the outlook on 10 year G-Sec yield, debt funds to be invested in the current market scenario etc.

Excerpts:

1) GDP growth in Q2 FY13 has moderated to around 5.3% YoY? What is your view on the GDP number? Will RBI cut key policy rates and shift focus from inflation to growth?

GDP growth seems to have bottomed out and while there might not be a dramatic recovery we should see a slight improvement going forward. In the mid quarter review the central bank has already highlighted its increasing concern with regards to the growth slowdown. As inflation eases over the next few months we expect RBI to increase focus on stimulating growth.

2) Market is factoring further rate cuts. According to you what will be the likely impact of possible rate cut on bond market?

A reduction in interest rates is usually positive for the bond market and we should expect yields to soften across the curve.

3) Where do you see benchmark 10 year G-Sec yield in three months?

Markets expect RBI easing by 50 - 100 bps on repo rate in calendar year 2013 starting with January policy. If that materializes, we see 10Y G-sec in the range of 7.80 - 8.10 in Q4FY13.

4) What is your take on movement of AAA bond yields?

We have seen the spread between long term AAA bonds and government securities compress over the last 6 months. At current spreads we think that the yield movement of AAA bonds should closely follow gsec yields.

5) Your AMC has recently launched a Gilt Fund and moreover this category has witnessed net inflows in the last three months upto November 2012. What's your outlook on this category of fund over the next six to ten months?

We will continue to see healthy flows on long term debt funds as we approach the policy easing cycle. The intensity of the flows is likely to stabilize as we head into the rate cut cycle.

6) As a fund manager, how are you managing the money in your portfolio and where are you investing in this market? In the current market condition, where will you advise investors to invest?

On the money market and short term funds, we are running conservative policy in term of credits with adequate liquidity maintained at all times. At the same time we have increased the duration on long term funds in the wake of expected policy action. Mutual Fund investments are ideal for long-term investment. Investors would do good to invest after taking into consideration factors like risk-appetite and financial goals.

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