quite cautious about the environment due to our concerns about CAD and rupee. Based on our independent research, we were able to take a contrarian approach compared to the market as we were not comfortable with the macroeconomic parameters. We had positioned our portfolios not just for downside risk in growth but also currency, by keeping the maturities relatively low. This was in contrast to the industry trend that had focused only on monetary easing and went long to take advantage of potential capital appreciation. This helped us when RBI changed its stance to defend the rupee.
Do you see the rupee strengthening going forward?
Given India’s fundamentals, the probability of rupee weakening is higher. However, global capital flows along with India’s reform process will weigh. An uncertain mandate in the national elections can lead to weakening. FII inflows into debt markets have improved after the expiry of the swap window at the end of November. We will have to evaluate global investors’ allocations to EM bonds as rates start to move up in the US.
Which debt products will do well?
We believe that investors should look at corporate bond funds that can take advantage of the high yields being offered on corporate securities. In addition, those with a longer horizon of 1-2 years can look at long bond funds that can offer a combination of high yields as well as capital appreciation.
What is your advice to debt investors at this point in time?
For investors, our recommendation as always will be to choose funds based on risk appetite and investment horizon. Market timing is difficult and hence the focus needs to be on respective investment objectives, rather than short-term trends. Fixed income funds can provide potentially superior tax-adjusted returns compared to traditional income/savings vehicles.