Beginning his career with sales and intermediation, he has traversed roles across fixed income verticals which include managing fixed income portfolio for a corporate treasury, government owned retirement fund and being an integral part of a private bank treasury. In recent years, Saurabh was part of HSBC Asset Management India Pvt. Ltd, responsible for managing funds for Employees Provident Fund Organisation, Government of India along with advising Life Insurance, Non-Life Insurance and FPI’s for their fixed income portfolios. His last role involved trading in fixed income instruments at Proprietary Trading Group of ICICI Bank.
Answer : Recent surge in cases and resultant slowdown in demand will inevitably reduce the growth momentum we had seen at the start of this calendar year. Debt markets ‘like’ slowing growth momentum as it arrests upside risk to yields.
Fiscal and monetary measures introduced through the first phase of pandemic have been effective enough to avoid crash landing of growth. These fiscal measures and monetary measures are still in place to move the mantle from growth revival to growth sustenance.
Debt markets will continue to benefit till the time system is in growth revival mode as monetary authorities will ensure that the rise in sovereign yields do not jeopardise the growth momentum (near term view).
Recent spike in covid cases has delayed this transition from growth revival to growth sustenance and hence yields will find comfort under continuing RBI measures.
Answer : Revisiting and reaffirming of rules is an ongoing process. Regulator interventions on timely basis has helped to ensure financial stability remains intact at all times. With a lot of moving parts, both onshore and offshore, which directly and indirectly impact the economy can have positive as well as negative impacts. It is imperative to ensure the positive impacts last long whilst negative impacts are quelled in the interest of financial stability.
Herein, timely interventions of the regulators have aided the economy to withstand variety of shocks; thereby aiding to keep the environment more conducive for investors. From the recent changes initiated in the debt funds space; statutory changes to maintain a certain threshold of liquidity highlights the significance of ‘portfolio liquidity’ at all times.
Answer : Every asset class has a cycle. From fixed income perspective; interest rates have come a long way from rate cuts, to liquidity infusion to sustenance of super surplus liquidity. All this has been done to ensure growth revives and is able to sustain itself in the long run. With so much of ammunition used by the government and RBI; they will wait for more conviction to see-through the transition from growth revival to growth sustenance.
Changing ground reality on pandemic will imply that growth can take a little longer to revive; implying low interest regime will stay for little more time.
Important to note, debt markets will need to be watchful when the mantle moves from growth revival to growth sustenance as fiscal fed growth often comes with other side effects of higher inflation and higher CAD (medium term view). These side effects lead to withdrawal of ‘ammunitions’ used to revive growth.
In a nut shell, a two pronged outlook on interest rates. Short term rates will benefit with extended support from RBI and as growth rebounds with fiscal push and monetary support; we can expect gradual withdrawal of latter leading to rise in interest rtes.
Answer : Choosing a fixed income product, we prescribe investors to tick - liquidity, predictability of returns and lower volatility - to meet expectations in debt investments. Liquidity doesn’t imply need for money, but ability of the investments to reset when interest rates move from pone phase to another.
Once the investor has identified the debt fund basis his horizon of investment, duration / credit risk boundaries of the fund and mapped with his own appetite for volatility it is advised not to do lot of things with his investment. Changing rate cycles will lead to changes in the portfolio strategy by the respective fund manager within the pre-defined boundaries. Volatility is inevitable and attempts to run away from the same can deny long term benefits of staying in a debt mutual fund.
Important to remember:
Returns in an open ended fixed income fund are determined by change in shape of the yield curve.
Views in fixed income are executed not only basis the shape of yield curve today, but prospects of changes thereof.
Extending ‘today’ to your horizon of investment can aid to balance between notional gains and opportunity losses.
Liquidity profile of the fund is critical to navigate changing interest rate cycles
Answer : Basis your horizon of investment and appetite for volatility, we recommend;
1. Apportion your investments between Short end roll-down fund as they can reset at least cost - DSP Savings Fund / DSP Corporate Bond Fund & Open ended funds which bear flexibility to move across duration as they can benefit from change in shape of the curve - DSP Strategic Bond Fund / DSP Govt. Securities fund
2. Funds that bear enabler (like Overnight Index Swaps and Interest Rate Futures) to protect returns when yields rise - DSP Floater fund
3. Funds that bear flexibility to navigate across the yield curve in a balanced proportion and can reset with the change in shape of yield curve - DSP Bond Fund.