Mr. Rakesh Shetty has more than 13 years of overall experience and expertise in trading in equity, debt segment, Exchange Trade Fund's management, Corporate Treasury and Banking. Prior to joining Motilal Oswal Asset Management Company Limited, he has worked with a Company engaged in Capital Market Business wherein he was in charge of equity and debt ETFs, customized indices and has also been part of product development.
Answer :
The volatility in the US 10 year has been driven by the uncertainty around fed action. The bond yields spiked last month after Fed hawkish remarks around further hikes, which made investors jittery if there could be more than one hike in fed rates in the near future. However, data since then has been softer and with Fed pointing out that the future rate action would be data led the investors are getting much more comfortable with a view of one more rate hike and then cut in the rates in 2024.
Answer : Credit rating is an essential parameter for our debt instrument selection, however given our conservative nature on the debt side credit rating only acts an indicator. We tend to deploy the same fundamental metrics for debt selection as well which we do for equity selection i.e. we like to have a) a very strong balance sheet, with gearing being in control, b) Cash flow generation and very high debt servicing coverage c) Companies doing well in their own segments generally we like to invest in leader companies even on debt side d) Good quality management with high focus on governance and finally yield which has to be commensurate with the risks involved.
Answer : In our view rate action in the Indian market would be driven by two factors a) India's inflation numbers and b) the spread between the US treasury and Indian treasury which is at a multi year low levels. With this in mind if we think that the US is going to have one more hike and the rates may start falling only in the second half of the next year, we would expect the same for the Indian markets.
Answer : On the debt side our investment philosophy is very conservative with a very high focus on not losing principle and also not creating much volatility. With this background for last three years we have run a portfolio which has been high on credit quality and given our view that the interest rates would be volatile we have run a very low duration portfolio.
Answer : Looking at Central government debt in absolute numbers is not right. It should be looked at in conjunction with a) economic growth b) cost of financing and c) Split between external and rupee denominated debt. In 2014 debt as a % of GDP was closer to 52% which has moved up by 5% points to around 57%, it touched a high of closer to 61% of GDP in 2021 and the current levels are lower than 2021 levels so the increase is not that stark as is visible by absolute numbers. Secondly with an economy growing in excess of 10% being financed by a 7% debt doesn't make me concerned and finally the proportion of external debt as % of total debt has declined from 2014 levels. Hence overall this is not something which would concern the bond markets.
Answer : In our view we think that the Indian and US 10 years treasury yield would not move much upwards and there could be a downward trajectory from the second half of the next year, hence moving the duration upwards could be good strategy.