MUTUAL FUNDS

We expect RBI to hike key rates by 25 bps in the next two months' time<
29-Nov-13   10:24 Hrs IST

Ms Bekxy Kuriakose
In an interview with Capital Market, Ms Bekxy Kuriakose, Head - Fixed Income, Principal Mutual Fund said, One can look to invest in no load gilt funds tactically to take advantage of high gilt yields at the current juncture which may fall going forward in next two to six months.

Excerpts:

  1. What is your outlook on the latest policy move? Do you think that the RBI will hike rates going ahead, looking at weak IIP growth and slow down in core CPI?
  2. RBI's policy move was largely on expected lines given the prevailing growth inflation dynamics. Given that headline WPI and CPI have crossed 7 and 10% respectively, we expect RBI to remain hawkish and maintain a tight policy. We expect RBI to hike key rates by 25 bps in the next two months' time.

  3. The weak economy, increases in food supply, and recent policy rate hikes will provide a disinflationary impetus over time, RBI has said. Do you see inflation moderating over the coming months?
  4. We need to wait for data. Few months back most analysts were predicting a fall in inflation due to good rains but that never happened, rather food prices of certain vegetables like onions shot up. Further food consumption pattern has been undergoing a marked change over the past few years. However our cropping and sowing pattern has not kept up with this change in consumption. Hence it would be difficult to predict by how much inflation will come down even if we see increase in food supply.

  5. The central bank has cut FY14 GDP growth forecast to 5% from 5.5%. If the condition were to continue as it is today, do we see GDP forecast to sub 5% levels?
  6. Most analysts and fund managers already expect GDP growth to be in range of 4.2% to 5% for FY14. So even if GDP growth comes below 5% it would not be a surprise.

  7. Although the RBI has raised the repo rate on the other hand cut in MSF rate will bring in liquidity. What could be the impact on bank's core business, with credit growth sluggish?
  8. Cost of funding has come down for banks with the cut in MSF rates definitely. In the current environment I think the number one priority for banks would be NPA management and raising capital.

  9. What is the road ahead for 10-yr G-Sec bond yields for 6 - 12 months? Is it the right time to invest in long-term debt / gilt / bond funds?

One can look to invest in no load gilt funds tactically to take advantage of high gilt yields at the current juncture which may fall going forward in next two to six months. Income Funds too look good from a one year or higher perspective given the exposure to corporate bonds which can give the extra fillip to fund returns and protect from volatility.

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