Avnish believes we are at the cusp of a short and shallow rate cut cycle (perhaps 50 bps in all), though one may not see it commence for another 6 months at least.
He disagrees with the view that there is also an imminent structural bull market in bonds. There are too many rigidities in the system including small savings interest rates and EPFO rates which may dissuade deep drops in yields.
Moreover, inflation at 5% can likely take a while to drift down to 4% but unlikely to drop further in the medium term, thus putting a floor on how deep yields can drop. He sees 10 yr G Sec yields continuing in the existing band of 6%-8% and expects yields to be around 6.5% by Mar 25.
Long duration funds (duration > 7 yrs) may at best be a very short term tactical bet, but come with much greater volatility and risk, making them unattractive in this market in his view, especially since spreads between long bonds and 10 yr bonds are now very slim.
Avnish prefers the 2-5 yr bucket where opportunities will come once the rate cut cycle commences.