The Reserve Bank of India‘s surprise 50-bps cut in the policy repo rate is yet to be fully priced in, said Invesco Mutual Fund’s fixed income head Vikas Garg. He is seeing opportunities in both corporate bonds and government securities.
“We believe that the market reaction is overdone. Over a month, stability will come back to the market and we would see the 50-bps rate cut getting priced in with another 15-20-bps rally,” he said. “We are maintaining our position, which is of a relatively higher duration across the curve. Our sweet spots are corporate bonds in the 2-5-year space and G-Secs in the 5-15-year tenure.”
With the stance changed to ‘neutral’, the fund house believes there would be a long pause (at least in August and October policies) before any further rate cut. “Towards the year end, I think there could be a window… Over the next few months, we’ll see data coming in where the growth may surprise on the negative side, inflation may come lower than what is expected, possibly opening up a space for one more rate cut towards the year end.”
“While the domestic demand for G-Sec remains decent, we have of late seen some outflows from foreign investors, thanks to global uncertainties,” Garg said.