Middle East war is a key variable that needs to be monitored closely as it can materially influence oil prices and therefore our inflation outlook. Meanwhile Trump’s 90 day pause on tariffs is also coming toa close in July, which can also cause some inflation jitters.
Large part of the duration rally is perhaps behind us now. We could be in for a period of consolidation at current range of yields. Over next few quarters, we need to watch for signs of global growth slowdown and/or domestic growth not measuring up to expectations. These can be catalysts for yields to potentially head lower, if such headwinds materialize.
SBI MF has pruned duration in its long duration funds(Gilt Fund duration down from over 10 to 7-8 range, Dynamic Bond Fund also down to around 7) as well as its medium and short duration funds.
Rajeev is adding corporate bonds to augment accruals given the healthy spreads available now.
In funds which have a mandate to go below AAA credit rating, his team is selectively adding AA/A rated papers to boost YTM.
Rajeev recommends SBI Short Term Debt Fund and SBI Medium Duration Fund as products ideal for retail investors that capture a healthy mix of accrual and limited duration alpha.
He stresses on the need for distributors to explain to investors the need to maintain reasonable diversification in their bond fund portfolios – which can best be achieved with the above two funds.
Our industry has seen some mis-steps (credit risk funds issue) and some misfortune (tax changes) that have unsettled investors about debt funds. Need of the hour is to promote simple funds, maintain consistency in fund mandates, fund management and fund communication year after year, to bring in many more retail investors into debt funds.