There is no substitution for core asset allocation irrespective of short-term market views. According to Anju Chhajer, Senior Fund Manager, Nippon India Mutual Fund, rising yields globally combined with moderate earnings growth due to incremental growth slowdown, will lead to mean reversion in multiples across stock markets.
In an interview with Mintgenie, Chhajer shared her views on debt fund instruments and their importance in one's investment portfolio.
Edited Excerpts:
Q. Too many fund houses are now coming up with new debt funds and fixed-income plan offers. Do you see a tectonic shift from equities to debt investments considering the fear of a possible recession in the near future?
As per SEBI regulations, there are finite numbers/types of schemes that can be launched in non-index/ETF space. Recently mutual funds have come up with ETF/index funds, which are either constant maturity or roll-down products, mirroring the respective indices.
Better carry and peaking rates make up for a good debt story, but there is no substitution for core asset allocation irrespective of short-term market views.
Q. What is your current valuation of the Indian stock market? What advice would you suggest to investors at this stage?
On a big-picture basis, rising yields globally combined with moderate earnings growth due to incremental growth slowdown, will lead to mean reversion in multiples across stock markets. Hence the next 12-24 months may be more about bottom-up stock selection-led performance rather than generic multiple-led market-wide performance.
Q. Bond yields are high now. Fixed deposit interest rates are increasing. In which direction do you see the yields moving on from here in the near to mid-term and why? Also, in case of a pause in the current rate hike cycle, what strategy would you advise investors to adopt?
The markets are likely to take comfort from realistic budget numbers, better-than-expected gross borrowing print and improved quality of spending. A good budget coupled with the peaking of policy rates will improve market sentiments further. The gross borrowing numbers remain high from a historical perspective and hence markets are likely to trade in a range-bound manner with positive bias in the near to mid-term.
Curve steepening bis is possible over the next 6-12 months, thereby, generating beyond carry returns, especially, in the intermediate (three to seven years) segment of the yield curve. Better starting carry coupled with better downside risk protection bodes well for investors to stay invested in short-term/ corporate bond/PSU funds, as well as long-duration products over the next 12-36 months. There are passive substitutes also in the form of a debt index fund, ETFs in similar maturity buckets which can be considered parallelly.
Long-term mutual funds products are likely to deliver better tax-efficient returns vis-à-vis any other fixed-income products (including fixed deposits).
Q. What is your outlook post-budget announcement?
The Budget 2023 has ticked all the right boxes without resorting to populism. The outlay for the capex was increased by 33 per cent year-on-year, which could lay down the foundation for productive non-inflationary growth in the future. This was achieved while decreasing the subsidy burden as a percentage of GDP, which ensured that the Centre remains on a fiscal consolidation path. This overall is good news for duration products, especially, the mid-maturity G-secs.
