MUTUAL FUNDS

We expect the 10 year benchmark to be around 7.40 levels sometime during the calendar year 2013<
05-Jan-13   10:59 Hrs IST

Mr.Sanjay Shah
From the debt market angle, we expect the interest rates to come off in 2013 to support growth. We expect 75 bps rate cut in 2013, which may prompt the higher duration segment to outperform the shorter tenor assets. says Sanjay Shah, Senior Vice President and Head of Fixed Income at HSBC Global Asset Management, India

We at Capital Market interacted with Sanjay Shah to now the outlook on debt markets for the year 2013.

Excerpts:

1) Regarding debt funds, since there is still a fair amount of uncertainty with regards to the precise timing of the interest rate cuts as we head into 2013, how do you approach debt funds now? Is it better to put your money in some of these open ended funds or do you think you would still stick to some fixed maturity plans (FMP) or even fixed deposits?

From the debt market angle, we expect the interest rates to come off in 2013 to support growth. We expect 75 bps rate cut in 2013, which may prompt the higher duration segment to outperform the shorter tenor assets. Moreover, as the reducing interest rate scenario will benefit open ended funds (as their duration can be higher than FMP durations and investors can capture the rate movements and move out in open ended funds), they may provide a good investment option to active and savvy investors.

However, investors should also look at their own needs and fund requirements while choosing funds rather than just being returns-centric in their approach.

2) What levels do you foresee for the 10 year benchmark government securities during 2013?

We expect the 10 year benchmark to be around 7.40 levels sometime during the calendar year 2013.

3) What's your outlook on fixed income markets for 2013?

We are looking for central bank to have growth centric bias in 2013, which will prompt them to cut rates even if inflation is above the RBI's comfort level. Controlling fiscal deficit is another important measure, wherein the government may be able to post better numbers for the FY 13 and FY 14 budgets, thereby improving the overall sentiment for rates. Liquidity easing efforts of RBI will continue through easing CRR and OMO, which will help shorter end rates to ease further.

We expect growth and twin deficits (Fiscal and Current Account) to be focus areas for the market. In terms of rates, the 10 year rates may ease substantially as stated earlier. The calendar 2013 may fare reasonably well balanced in terms of returns as compared to 2012.

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