Bandhan MF – one of the most respected names in the fixed income space – has launched its Long Duration Fund at a time when it says it sees an extremely rare confluence of a cyclical opportunity coming together with a structural one amidst reasonable valuations.
An impending rate cut cycle is a cyclical opportunity that is widely discussed and anticipated. But beyond this, Gautam sees a case for a structural decline in yields on the back of an expected reduction in India risk premium as we continue making strong progress towards reducing our current account deficit.
Incremental demand from FIIs with the inclusion of Indian bonds in the JPM EM index will likely be the first in a few more such inclusions – thus fuelling the case for a longer term bull market for Indian bonds.
Gautam refutes the notion that a 30 bps fall in yields over the last 5 months means most of the “juice” is over in this cycle. He believes this cycle is just beginning and the coming years will see a structural bull market play out with intermittent cyclical ups and downs.
Bandhan has positioned its duration based strategies aggressively – its dynamic bond fund is running a 12 year duration – signaling that its upcoming long duration fund can potentially go even higher on duration.
Gautam urges distributors, advisors and investors to take a closer look at the actual duration within their fixed income portfolios –chances are they are way below what they expect as most fund managers are running fairly short durations. Having short duration at the cusp of a structural bull market carries significant reinvestment risk from a longer term perspective.