Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund, believes we are near the peak in the interest rate hike cycle, hence, investors can use this opportunity to increase their investment into fixed income options across categories keeping in mind their investment horizon and risk appetite. In an interview with MintGenie, he said inflation has peaked and will moderate further.
There is a strong chatter that the biggest theme of 2023 is the migration of money from equity into debt. What is your view on it?
Investors should invest according to their asset allocation and as such we think that both asset classes will get money as incremental savings move into financial assets.
As bond yields across the curve have gone up last year and with the expectations of a pause in the rate hiking cycle in the near future, we believe that the current higher yields will improve the returns from fixed income investment going ahead.
Hence, we believe investors may see better returns from fixed income as compared to the last couple of years.
What are your expectations on the rate hike cycle? Is the interest rate hike cycle coming to an end in the next coming months?
We believe that the rate hiking cycle will come to an end in the near future. After the aggressive and front-loaded rate hikes done by central banks across the world last year, they are reducing the quantum of rate hikes as inflation has started to moderate.
In India, CPI inflation has come in below 6 percent for the last two months and is likely to moderate further, hence we think that the rate hiking cycle is coming to an end.
Do you think inflation has peaked out and growth is still on a strong footing?
We believe that inflation has peaked and is likely to further moderate towards 5 percent over the next two quarters.
Growth is also on a firm footing but may moderate a bit as the global economy is likely to slow down with a likely recession in Europe and a slowdown in the US.
This can lower our export growth and may have an impact on the domestic economy. Overall, GDP growth in FY24 is likely to be lower than in FY23.
What could be an ideal investment strategy and how should investors invest for the medium to long term?
First and foremost, investors should invest according to their asset allocation and stay true to that.
Investors should frame their asset allocation by taking into account their financial goals while keeping in mind their investment horizon and risk appetite.
Specifically for fixed-income investment, the stage of the interest rate cycle is an important determinant of the fixed-income investment process.
We believe that currently, we are near the peak in the interest rate cycle, hence, investors can use this opportunity to increase their investment into fixed income across categories keeping in mind their investment horizon and risk appetite.
If there is one thing that you would want retail investors to keep in mind, what would it be?
As mentioned earlier, investors should frame their asset allocation keeping in mind their financial goals. Investment horizon and risk appetite are important determinants of the asset allocation process and investors should not focus on timing the market but stay invested across market cycles according to their asset allocation
What are your expectations from the Budget?
The Union Budget lays out the income statement of the central government which shows the government's revenue and expenditure.
Over the years the occasion has been used by the government to change the tax structure and lay out the fiscal policies of the government.
Though we have seen that major reforms and/or policies have been announced outside of the Budget in the recent past, from a bond market perspective, the fiscal deficit or the borrowings of the central government are important variables to track in the Budget and as such, we think that the fiscal deficit can be in the vicinity of 6 percent for FY24 as compared to 6.40 percent in FY23.
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.