'Yields will continue to be volatile'

K Ramanathan

What has been the key to your outperformance till now?

On the debt side we reduced the average maturity (which was earlier being maintained at 2.5-3 years) a year ago and have been maintaining it at around 1-1.5 years on an average.

We also increased our exposure to high-quality securitised papers with good yield pick-up. In the equity side, we have maintained the allocation in the 12-15 per cent range. The fund is diversified across banking, IT, telecom, agrochemicals and pharmaceuticals.

What is your outlook for the debt markets for the medium term?

The yields in the market have backed up quite a bit in the past one year.

Inflation is expected to stabilise in the short term. The negatives are the high supply of government paper and the lack of appetite from banks. Yields would continue to be volatile and duration management would be the key for delivering higher returns in fixed income.

So, what will be your strategy to deal with the volatility?

We would be looking at active duration management in the debt portion.

What about equities?

The long-term story remains compelling with both the domestic and global drivers in place. Corporate earnings have grown at a CAGR of over 19 per cent in last six years.

With GDP growth in nominal terms at 12-13 per cent, corporate earnings over next 5-10 years should be in the range of 15-17 per cent per annum.

So long as corporates continue to show robust performance and valuations remain reasonable, investors' interest in the market will be sustained.