India's JM Financial Mutual Fund is implementing a strategic shift toward earning interest income from bonds while reducing duration risk as it expects the Reserve Bank of India to begin raising interest rates. According to reports from The Hindu BusinessLine, the fund manages debt assets worth around ₹29 billion ($303.18 million) and plans to focus on gathering accrual while shortening duration exposure. As reported by Reuters' Trading India forum, the strategy aims to lower exposure to bonds whose prices are highly sensitive to interest rate changes.
Bond markets rallied on Friday following the Reserve Bank of India's decision to keep its key policy rate and stance unchanged, while announcing measures to attract dollar inflows. According to The Hindu BusinessLine, yields on bonds with maturities up to five years plunged 15-20 basis points, and those on shorter-duration corporate bonds also dropped. The 10-year benchmark bond yield logged marginal declines, with bond yields moving inversely to prices.
While the market remains divided over a rate hike at the RBI's next policy meeting in August, JM Financial Asset Management's Killol Pandya expects the central bank to stand pat that month. As reported by The Hindu BusinessLine, Pandya anticipates the RBI may act in October with an orthodox dosage of 25 basis points per hike, potentially creating a rate hike cycle of 75-100 basis points. He expects the 10-year benchmark bond yield to trade in the 6.90% to 7.10% range over the next couple of months.
Pandya expects the massive market volatility to create tactical opportunities for traders, as reported by The Hindu BusinessLine. He noted that many domestic tailwinds are behind, including 125 basis points of rate cuts, the Goldilocks growth-inflation outlook, and upcoming El Niño concerns. A Reuters poll of economists estimated retail inflation accelerated to 4% in May from 3.48% in April, with sustained energy challenges potentially seeping into inflation expectations.
