Top 6 Questions With : Suyash Choudhary, Head - Fixed Income, IDFC Mutual Fund
Updated on: 16 Jun 2016
After reducing rates aggressively in recent times, the RBI took a pause in the recent policy meet. In an interview with BW Businessworld, Suyash Choudhary, Head - Fixed Income, IDFC Mutual Fund offers his views on the debt market in the times to come, and advises retail clients on their fund selection.
In light of the mildly hawkish tone used by the RBI in their most recent policy meet, what is your medium term outlook on interest rates? Do you foresee the scope for further rate cuts, especially if monsoons disappoint?
Suyash: In our view, most of the disinflation witnessed over the past 2 years has largely been on account of 4 underlying factors: fall in global commodity prices, fall in domestic rural wages, prudent hikes in minimum support prices (MSP), and efficient management of cereal stocks. Amongst these, global prices have recently been rising whereas rural wages seem at the point of inflection. MSP and cereal stock management are still prudent but are no longer contributing to incremental disinflation. Finally, the core components of CPI seem firmly stuck in the 5 - 5.5 per cent band. Given all of these, we think the rate cut cycle is broadly done. The key to further disinflation and sustained rate cuts rests with structural supply side measures by the government.
We expect the yield curve to continue to steepen as has been the trend over the past 9 months or so. Front end rates (1 to 5 years) should benefit from the RBI's new liquidity framework as well; whereas long end rates may be sluggish owing to lack of incremental disinflation.
Should investors lock in their money in 3 year FMP's at this time?