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Amidst global economic uncertainty, India’s equity and fixed income markets are displaying cautious optimism. India’s 10-year bond yields rallied by more than 10 bps over July 2024 and US 10-year yields are down by more than 35 bps. With ease in Banking liquidity yields in short term/money market curve too saw a rally of 10-25 bps.
Devang Shah, Head – Fixed Income, Axis Mutual Fund, said the current market positioning is heavily tilted towards a bond rally, which could lead to increased volatility if the Reserve Bank of India (RBI) surprises the market with policy changes.
“Any surprises from RBI policy especially on OMO sales or MSS announcements can lead to volatility and rise in yields by 10-20 bps,” said Shah.
Shah advised investors to maintain a duration-focused portfolio and exercise patience for further rate cuts, which are expected in the second half of the fiscal year. The firm recommends short to medium-term funds with tactical allocations to gilt funds.
“With expectations of lower Q2 CPI, favorable demand supply dynamics for bonds and continued flows from FPI we continue to advise Short to Medium term funds with tactical allocation too gilt funds to our clients,” said Shah.
Shreyash Devalkar, Head – Equity at Axis Mutual Fund expressed confidence in the domestic market. He highlighted the government’s consistent focus on capital expenditure, which has seen a year-on-year growth of 17%. This, coupled with the government’s fiscal discipline, is expected to spur private investments, creating a positive environment for the overall capex cycle.
Devalkar recommended overweighting sectors such as infrastructure, manufacturing, utilities, and transport, which are likely to benefit from government initiatives. Additionally, sectors aligned with government policies like energy, defense, and power are seen as promising investment avenues. However, the firm maintains an underweight position on export-oriented sectors due to the global economic slowdown.
“Overall, we remain positive on the markets and continue with our themes of being overweight consumption, investments and underweight exports. Always remember markets may go through cycles but it is important to stay invested,” said Devalkar.
First Published: Aug 08 2024 | 10:03 AM IST
