Repo rate is set to drift down to at least 5.50% (2 more cuts of 25 bps each) and potentially all the way to 5% levels – depending on the extent of growth scares that may come out of global trade wars and the trajectory of inflation in the country.
10 yr G Sec yields are likely to drift down to 6-6.25% levels as repo rate goes down to 5-5.5%.
Expect our GDP growth to slow down for the next couple of quarters as the world awaits an outcome from ongoing US-China trade war.
With Indian CAD at less than 1% on the back of strong service exports and soft oil prices, we can withstand some currency volatility that may arise as a fall out of trade wars.
All duration based funds at the AMC are operating at or near the top end of duration that’s appropriate to each strategy. Money market/ ultra short funds are running a duration of 1, short term at 3, corporate bond is a little above 4, bank/PSU is close to 4, medium duration is at 4, income fund is close to 7, long duration is at 12 years. All funds are in other words operating on 5th gear, aiming to capitalize on this bull market.
Anil recommends incremental flows to be invested in HDFC AMC’s Income Plus Arbitrage Active FoF – which has come about more recently by repositioning an earlier existing scheme. The fund has 35% exposure to arbitrage (which allows the product to qualify for 12.5% LTCG for 2 yr holding) and the balance 65% is a corporate bond fund-like strategy with a duration of 4years.
You are getting a medium duration fund with tax efficient gains for 2 yr holding period – a sensible option for most fixed income investors.