July CPI print at 3.54% - the lowest in last 5 years – may not suggest yet that we are decisively below 4% on inflation as RBI has maintained its quarterly forecast at 4.4%.
Avnish doesn’t think that the low IIP reading of 4.2%will be seen by RBI as a growth scare, since services growth numbers continue to be healthy. There is therefore no immediate data point to suggest that RBI will be in a huge hurry to commence its rate cut cycle.
While US Fed is now expected to be lot more aggressive with its rate cuts between Sept and Dec 24 on the back of slowing inflation and cooling growth there, Avnish doesn’t expect this to put undue pressure on RBI to act in tandem.
An expected weakening in the dollar index (DXY) can cause INR depreciation to stall. However, Avnish doesn’t expect any significant strengthening of the rupee as RBI is very sensitive to the need for a stable rupee to support our export growth.
Avnish has used the last few months of declining yields to increase duration across the fund house’s product suite. Their income and dynamic funds now run a duration of around 6-7 yrs and mid-duration funds are at 3-3.5 yrs duration.
He sees the best opportunity today in corporate bonds where the yield curve beyond 1 yr has flattened out. Low duration funds with 1yr AAA corporate bonds and corporate bond funds with a mix of 1, 2, 3 and 4 yr duration AAA corporate bonds look very attractive right now.