Anil’s base case is for Indian rate cut cycle to begin in the Oct-Dec 24 quarter. Recent developments in the US – spiking bond yields, tight labour markets and a rising dollar are creating a doubt among market players about the timing of a rate cut cycle in the US. However, India is not so dependent on US rate cuts due to our strong macros.
Reacting to technical analysts’ views that Indian interest rates are headed higher to the 8%-9% levels as per charts, Anil says such a probability is very low as fiscal responsibility is capping supply of paper and incremental structural demand from domestic pension and insurance companies and from FIIs. Case for rising yields in a favourable demand-supply scenario is very low.
Can we see a big bonds bull market with the 10 yr G Sec yield dropping to 6%? Anil says it’s a question of time frame – don’t expect it to happen in 12-18 months, but expecting it over 4-5 years is very reasonable. If India’s inflation settles down gradually to 4%, a 200 bps real rate of return is more than adequate – which would peg the 10 yr G Sec yield at 6%. It’s a question of being a little patient to let this happen. Anil expects the 10 yr G Sec yield to drift down to 6.75% this fiscal.
HDFC MF’s short to medium duration funds (short term, banking/PSU, corporate bond, medium duration) are all running durations higher than a year ago – currently ranging from 3 to 4 yrs. Its long duration fund is running a duration of 11 years – signifying their bullish view on rates falling this fiscal.