The RBI on Wednesday delivered a second rate cut in succession, changing the policy stance from neutral to accommodative, giving further clarity on the trajectory of rates going ahead.
Yields across the curve fell 3-5 bps after the rate action. The central bank’s change in stance is suggestive of proactively supporting growth given the challenges that could be faced in such an environment and could imply a deeper rate cut cycle.
“Investors may consider investing in duration products to take advantage of fall in yields in the coming months. Gilt fund, corporate bonds and short-term bond fund may be part of core portfolio to take advantage of fall in yields. For accruals, investors may look to invest in money market and ultra short-term bond fund,” said Murthy Nagarajan, Head - Fixed Income, Tata Asset Management.
The central bank has cut 50 bps since February and analysts expect another 25 bps cut in June and a pause thereafter. If the tariffs linger, further cuts of 25-50 bps could be in the offing.
Supportive stance
“Given the indications of continued policy easing and comfortable liquidity from the RBI, we believe longer-duration bonds as well as spread assets should likely outperform going forward,” said Piyush Baranwal, Senior Fund Manager, WhiteOak Capital AMC.
“Bond yields remained slightly higher immediately after policy announcement as the rates have eased significantly in the prelude but are expected to continue to soften, going forward. It would seem that in the current environment of uncertainty, the central bank is going to do the heavy lifting yet again, as it did during Covid disruption. That suggests a supportive environment for fixed income in the immediate term,” said Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India).
Baranwal feels that the current lower spreads for Indian G-Secs versus the US Treasury compared with the past may not necessarily be an impediment in these spreads narrowing further. This is on account of the unique issues plaguing the US bonds such as elevated fiscal deficit, compounded by potentially diminished inclination of global central banks and other investors in buying US Treasuries unlike in the past.