A top Indian fund manager is shunning lower-rated rupee corporate bonds until the impact of the world’s worst Covid-19 crisis on weaker borrowers is better understood.

The level of stress in the economy especially for small- and medium-sized enterprises is still unclear after states locked down to curb the spread of a second virus wave from March, said Dhawal Dalal, who oversees $4.8 billion of debt assets at Edelweiss Mutual Fund. Dalal, who manages one of the best-performing debt funds over the past year, has added only AAA rated corporate notes to his portfolio since March.

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“As the economy showed signs of recovering after the first Covid-19 wave, we had asked investors to start considering non-AAA corporate bonds,” Dalal said in an interview last week. “But after the second wave, once again we have reverted back to asking investors to be cautious” until at least the second half of India’s financial year, starting in October, he said.

India’s Central bank earlier this month lowered its economic growth forecast and announced a raft of new measures to support businesses, as new strains of the virus threaten recoveries in emerging and developed nations. Fixed income managers in India have favored safer credits this quarter, with the extra spread that investors demand to hold BBB rated notes over top-rated peers near a 2005-high recorded in April.

Dalal’s Edelweiss Banking and PSU Debt Fund is the best performer among India’s mutual funds focused on such securities over the past year, returning 7.65 per cent on its regular investment plan, according to data from the Association of Mutual Funds in India.

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