“The yields have come down largely because NBFCs have started getting financing from banks. They have also been doing portfolio assignments. The combination of these two things has brought a good amount of confidence in the market,’ says Lakhsmi Iyer, CIO debt and co-head product at Kotak AMC. “Add to this the OMO. You have continuous supply from the RBI OMO plus crude oil prices coming down has pushed the category up,” Iyer says.
The 10-year government bond yield which stood at 7.93 per cent in September dipped to 7.78 per cent this week. The Reserve Bank of India bought bonds from the market between May and October, and plans to inject Rs 40,000 crore in November to help liquidity in the market. The RBI buying coincides with cooling in the crude oil prices that helped drive the yearlong selloff in bonds. All this went in favour of the debt mutual fund categories in general and long duration bonds in particular.
“The performance in the last one month is mainly because of two factors. One is that oil prices have started to come down. The other factor is the RBI OMOs. In the month of October we saw Rs 36,000 crore of OMOs. For the month of November, RBI has already released a schedule of Rs 40,000 crore of OMOs. So, for the three months of September, October and November, OMOs alone are around Rs 1 lakh crore. That has been very positive for the market and for the long duration funds,” says Kumaresh Ramakrishnan, Head of Fixed Income, DHFL Pramerica AMC.
Crude oil which was at 86 dollars a barrel has come down to 72-74 dollars per barrel. The oil prices are down 10-12 per cent in about two week’s time. Market participants expect that with the softening of oil prices and strong macros, RBI might put a pause on the rate hikes in the next monetary policy meeting in December.
“We believe that the macros are quite favourable. Crude has come down, inflation continues to be benign. RBI has anyway said that they are looking at calibrated tightening. If inflation remains on the similar lines, we are expecting RBI to stay on a pause in December,” says Ramakrishnan.
However, fund managers believe that it is not a good idea to rush to invest in long duration funds at this point. “I will stand with what I had advised; investors shouldn’t jump to invest in long durations funds. I still believe that there is volatility in the segment and a lot of the benefits from the yield movement have been reflected in the short-duration section also,” says Lakshmi Iyer.