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    Scenario is favourable for long duration debt mutual funds, says Mahendra Jajoo of Mirae Asset

    Synopsis

    The apex bank did not offer any clues about future rate cuts. Shivani Bazaz of ETMutualFunds.com spoke to Mahendra Kumar Jajoo, head - fixed income, Mirae Asset, to find out about the future course of rates and the strategy for debt mutual fund investors.

    ET Online
    A hurriedly called press conference by the Reserve Bank of India on Monday raised hopes of an out of turn rate cut. However, the banking regulator deal with the situation arising out of the Coronavirus pandemic. The apex bank did not offer any clues about future rate cuts. Shivani Bazaz of ETMutualFunds.com spoke to Mahendra Kumar Jajoo, head - fixed income, Mirae Asset, to find out about the future course of rates and the strategy for debt mutual fund investors.


    The RBI didn’t offer any hints about future rate cuts in its press conference on Monday. What was the market expecting?
    The market expectation was of a rate cut. I was also expecting a decision on rates, but many people were in double minds because there would have been an announcement before the presser. RBI has never announced the rate changes in a press conference. However, looking at the global scenario, many did expect RBI to cut rates out of turn.

    Things You should consider
    • Annualized Return
      for 3 month: 0.98%
    • Suggested Investment
      Horizon: <3 month
    • Time taken to double
      money: 10.1 Years
    The yields went down before the press conference and moved up after the conference when the market realised that nothing happened. I think a little bit of excitement got built up before the press conference, and rightly so just in terms of the timing of the press conference. Those expectations have not come true.

    RBI has not ruled out the possibility of a rate cut. What is your outlook for the debt market in the near term? Do you think that the sentiment will stay positive?
    The sentiment in the debt market is positive. The credit is poor and the growth is slow. On the credit side things are a little worrisome. However, the rates are going to come down and that is what keeps the overall sentient positive. The yields have not come down drastically. But there is room for rate cuts and globally the central banks are taking that route. RBI has said that they would use the measures at the right time. Now we have to wait and watch till the MPC decides on the measures.

    About the credit crisis, mutual funds are following up on the Yes Bank fiasco. Many schemes were recently hit. How do you see that unfolding?
    Yes Bank was another credit event that happened. I don’t think anyone can really control such scenarios. However, NAVs have taken the hit already. There is no point moving here and there now. Many schemes have created segregated the portfolios of the troubled securities. Such events might happen in future also. I think investors need to be very cautious and careful when investing in schemes. Sebi and RBI have taken the charge for Yes Bank issue and hopefully things should get sorted or at least clear soon.

    With the US Fed cutting rates to zero levels, how much room does RBI have?
    The Reserve Bank seems a little confused at the moment. They have not cut rates or spoken about it openly. However, RBI will cut rates later if not now. But I expect at best a 40 bps rate cut this time. It might be less than that too. RBI has repeatedly assured that it will take action and it is ready to take action. They used the terms ‘complexity of the situation’ and ‘at the appropriate time’.

    Fed has given a crisis signal and the world markets are reacting to that at the moment. We will have to see how RBI reacts to that signal.

    There have been issues about the transmission of rates in the system. What do you think about that? Will a rate cut at this moment help?
    There are problems at the transmission end. It has been there for a long time since RBI started cutting rates. RBI has been saying it for a long time and asking for better transmission, but I don’t think that has helped. We have to see how it goes at this point.

    What should debt mutual fund investors do at this point? Is it a good time to take tactical calls?
    See, the long duration bond funds are going to benefit from rate cuts. This scenario is favourable for all long duration schemes. However, taking tactical bets at such times might be difficult for retail investors. If one can be proactive and take tactical calls considering taxation and loads, they can. But I believe most retail investors can’t do it. So, it is better to stick to your asset allocation and stay in safer funds.


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