Here is what rate pause by RBI means for the mutual fund investors.
Adhil Shetty, CEO of Bankbazaar.com
For mutual fund investors, an unchanged repo rate amid high food inflation and global market volatility offers a mixed opportunity. Debt fund investors can expect stable yields and potential gains from anticipated rate cuts. Equity investors should focus on sectors that are resilient to inflation and market fluctuations. Hybrid funds provide a balanced strategy, reducing risks from both debt and equity markets.
To maximize returns, it’s essential to maintain a diversified portfolio and stay updated on macroeconomic trends. With stable interest rates, SIPs offer a reliable investment strategy, ensuring consistent contributions and potential substantial wealth accumulation when the market performs well. If you have funds, buying on dip may work in your favour in the long term.
Puneet Pal, Head- Fixed Income, PGIM India Mutual Fund
We continue to be constructive on Indian Bonds, given the strong underlying macroeconomic fundamentals and the start of the global easing cycle with renewed concerns on slowdown in the US economy along with recalibration of the rate cuts from the US Fed. Although we expect RBI to be on pause over the next 4-5 months, bond yields tend to react in advance of rate cuts and as such we expect yields to gradually shift lower and we would recommend investors to increase their allocation to Fixed Income.
Pankaj Pathak, Sr. Fund Manager- Fixed Income, Quantum AMC
In this falling rate environment, investors should look at dynamic bond funds which can allocate to long duration bonds while being flexible to change the portfolio position if things turn adverse. This flexibility allows investors to remain invested for longer period.
Deepak Agrawal, CIO- Debt, Kotak Mahindra AMC
Amidst the global volatility in financial and divergent Central Banker actions, RBI remained calm and decided to maintain status quo on rates and continue with “withdrawal of accommodation stance” with 4:2 vote. Growth and Inflation targets were unchanged. RBI has not taken active measures on the liquidity front and intends to continue with VRRR auction to suck out surplus liquidity. We continue to expect a change of stance and monetary easing in H2 FY 2025, market reaction has been muted and the 10 year is expected to trade in the range of 6.75% – 6.95%.
Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India)
“While markets may reflect slight disappointment at key rates as also the stance of policy remaining unchanged, that was the consensus expectation as well. The recent indication of easing in global markets had risen to hopes of a somewhat dovish guidance, however, MPC remained focussed on headline inflation, perhaps guided by a steep increase in projection for Q2FY25 from 3.8% earlier to 4.4% and considering that food & vegetable prices have not cooled enough as expected.
However, the outlook remains promising with robust growth, moderating inflation, improving liquidity, and easing financial conditions in global markets. As such, bond yields remained largely unchanged with some volatility. The same trend is expected in the near term with markets trading in a narrow range.”
Devang Shah, Head Fixed Income, Axis Mutual Fund
RBI monetary policy remains status quo on rates and stance in Aug policy, our perspective is that RBI is remaining cautious due to:
- Rising geopolitical uncertainty and global turmoil in the last few days which can impact financial conditions and currency.
- Uncertainty on monsoon and higher food inflation, they want to be sure that rise in food inflation is transient before being dovish on monetary policy.
- Observe Fed actions in September policy.
Market reaction has remained muted as monetary policy was status quo and there was no mention of OMO sales or any other liquidity measures. We believe that if monsoons are on track and food inflation subsides, there is a very high probability of RBI changing its course on monetary policy from October policy.
We expect RBI to deliver about 50 bps of rate cut in this cycle and suggest clients to hold duration in their portfolio.
Murthy Nagarajan, Head-Fixed Income, Tata Asset Management
RBI maintained its monetary policy stance of withdrawal of accommodation and kept all the policy rates unchanged. GDP growth is expected to remain at 7.2% due to good monsoon, higher sowing and expected pick up in the rural economy. RBI Governor indicated a shift in focus from Core Inflation to headline inflation from, and forecasted CPI inflation to come down at 4.5% for FY25. The pace of reduction is expected to be uneven due to repeated food shocks. The Governor stated food- which constitutes around 46% of CPI basket, contributed 75% of the rise in CPI inflation for June. Of which, vegetables Inflation contributed 35% of the rise in CPI Inflation.
All these statements are on expected lines and the market will focus on CPI inflation for July which is expected at 3.7%. The market is expected to trade on a bullish note with the Indian ten-year Government Securities trading in the band of 6.80% to 6.90% in the coming months.
Rajeev Radhakrishnan, CIO – Fixed Income, SBI Mutual Fund
The policy statement was decisive in terms of communicating RBI’s mandate to align headline inflation closer to the target of 4%. Notwithstanding comforting signals from the easing core inflation, the importance of headline in shaping expectations and avoiding spillover to general prices was emphasized. This clearly pushes back expectations on RBI reacting to short term market volatility and US FED actions in changing the stance of policy in the near term.
In the backdrop of robust domestic growth monetary policy will likely remain focused on aligning inflation closer to the target, while being alert to any threats to financial stability from external spillovers. Lack of any specific mention of OMO sales in the Governor’s statement was at the margin comforting, even as we expect any excess liquidity to be gradually sterilised so that the overnight rate settings are aligned closer to the repo rate.
Anurag Mittal, Head of Fixed Income at UTI AMC
The monetary policy was on expected lines. While the global market narrative is of a possible growth shock & steep rate cuts from the fed, the RBI remained steadfast in its focus on domestic policy drivers with emphasis on achieving inflation towards 4% in a backdrop of strong domestic growth. We continue to believe that RBI will probably cut rates when it sees hard evidence of a meaningful growth slowdown or stability in inflation, Moderate duration products are better placed in such a market construct of easy liquidity & shallow cycles.
Prashant Pimple, CIO-Fixed Income, Baroda BNP Paribas Mutual Fund
RBI’s unchanged inflation projection for FY25 instills our confidence that inflation continues to remain on a declining trajectory with current food shocks to be transitory. This along with developing global monetary policy dynamics around expectations of FED monetary pivot in September-24, creates a space for our expectations of a domestic monetary policy pivot in December-24. We expect a stance change in October-24 given inflation remains on track.
Mihir Vora – CIO, TRUST Mutual Fund
Bond markets have been stable as the policy was in line with expectations. Also, there were no additional measures announced on liquidity absorption. 10-year Government securities yield is likely to trade in the range of 6.75 to 6.90 in the medium term. Liquidity is likely to be in surplus. Yields on Corporate bonds in the 1-3 year segment will stay elevated as they track higher bank deposits rates.
Amit Somani, Senior Fund Manager-Fixed Income, Tata Asset Management
RBI remains focused on bringing down Headline Inflation within target range on a sustainable basis. We expect short-term rate curve will be driven by Banking System Liquidity as near-term policy rates are likely to remain in status quo mode. Current Short-term rates offer attractive avenue to investor with near-term investment horizon.