MUTUAL FUNDS

We believe that duration strategies continue to be favourably placed for 2015,with interest rates poised to come down<
09-Feb-15   14:15 Hrs IST

Mr. Santosh Kamath

In an interview with Capital Market, Santosh Kamath, Managing Director - Local Asset Management, Fixed Income, Franklin Templeton Investments, India said, Fiscal deficit situation has also improved, and although we might not be entirely out of the woods yet, it is unlikely that we will miss the 4.1% budgeted fiscal deficit target for FY15 by a very wide margin.

Excerpts:

  1. What is your view on movements in bond market and bond funds in CY14?

2014 turned out to be a good year for duration strategies, with bond yields softening considerably, especially in the second half of the calendar year. Both inflation and inflation expectations have come down. Fiscal deficit situation has also improved, and although we might not be entirely out of the woods yet, it is unlikely that we will miss the 4.1% budgeted fiscal deficit target for FY15 by a very wide margin.

Accrual strategies posted comparatively lower, but still healthy returns in 2014, with yields remaining elevated for a large part of the year, and also with the credit environment improving. The credit upgrades for companies have picked up, and is expected to improve further as the economy recovers. Companies are finding it easier to raise capital through other means, thereby reducing their leverage or debt component. Also, the RBI recently eased norms for infrastructure loans, by providing flexible structuring and re-financing of existing long term project loans to infrastructure and core industries. This may help to provide more flexibility to banks for extending long term credit to the sector, and reduce their non-performing assets.

2.  Kindly share your views on Rupee and oil prices.

The rupee has depreciated a bit recently against the dollar, but the depreciation is not as alarming as in mid-2013. The sharp fall in international crude oil prices over the past few months has been a boon for oil importing countries like India—helping to reduce our oil import burden. This in turn will help to improve our current account balance, which will augur well for the bond markets. However, at the same time, if crude prices continue to remain depressed, then it may impact liquidity or flows from oil exporting or producing countries, thereby squeezing foreign portfolio flows into the Indian markets to some extent.

  1. Which is a good investment strategy?

Despite the recent fall in bond yields, we believe that duration strategies continue to be favourably placed for 2015, with interest rates poised to come down. Investors with relatively higher risk profile and investment horizon can consider longer-dated bond/gilt strategies to benefit from the potential fall in bond yields. Also, with yields still remaining elevated at the shorter end of curve and with the credit environment improving, we continue to remain positive on corporate bonds and accrual strategies.

Powered by Capital Market - Live News