HSBC MF’s fixed income outlook ’24 note is a well researched piece with evidence backed views. Interest rates have been trending down in ranges for the last 13 years and will now likely remain in the 6% - 8% range, especially as RBI is likely to allow inflation to run at 4.5% - 5.5% to support growth.
Expect the rupee to depreciate marginally (1-2% p.a.) over next few years. While a case can be made for potential rupee appreciation, RBI is likely to dissuade this to support export growth especially when global growth outlook is uncertain.
Outstanding macros coupled with responsible fiscal management set India apart from almost all other countries at the moment.
Expect only a couple of rate cuts in what may end up being a shallow cutting cycle. Best opportunities today lie perhaps in medium to long duration G-secs for the next 3-4 months. Once RBI starts easing off on liquidity, corporate bonds in the 3-5 year segment can offer good opportunities.
Important to invest in actively managed dynamic funds (with a 12-18 month horizon) which can move nimbly to pockets of opportunities in a timely manner.
Despite great macros, don’t bet yet on a structural bond bull market in India as growth priorities are likely to result in limited downside to yields for some years. Remain nimble, stay with active strategies.