)
Mutual fund houses may go slow on debt paper purchases this month, as the Street awaits more clarity on the government’s fiscal deficit, to be announced in the Budget soon. Also, fund houses are awaiting the outcome of the Reserve Bank of India (RBI)’s monetary policy to be announced on Tuesday. It is expected the central bank may continue with its anti-inflationary stance, despite maintaining status quo on key policy rates.
According to data from Securities and Exchange Board of India, fund houses net-bought debt worth Rs 50,608 crore in May, compared with Rs 49,934 crore in April. In April, buying interest had seen a rise, as the yield on the 10-year bond had breached the nine-per-cent mark. In May, the yield was below nine per cent, but there was euphoria due to the outcome of the general elections.
“The view in the bond market has been better in the run-up to the general elections. People broadly expected there might be a strong mandate after the elections. Some of the negative mood, which started in April, began to disappear. The election results turned out to be positive and the sentiment was further enhanced,” said Suyash Choudhary, head (fixed income), IDFC Mutual Fund.
Speaking in Tokyo on Friday, RBI Governor Raghuram Rajan had said he expected to join hands with the new dispensation in the finance ministry to reduce inflation. Accordingly, the Street expects the yield on the 10-year bond may fall to 8.5 per cent this year, owing to which many will be able to book profits on debt investments. However, the outlook for the near term demands clarity from RBI and the new government on factors such as inflation, growth and fiscal deficit.
Due to deployment in April and May, the cash holdings of fund houses have fallen. As a result, significant bond-buying might not be seen this month.
“RBI may not take the risk of cutting the repo rate due to sticky inflation and the impending Budget. In June, bond-buying may not be much because the monsoon is being delayed and there are concerns ahead of the Budget,” said S Ramaswamy, chief investment officer (debt), LIC Nomura Mutual Fund.
Currently, the repo rate, kept unchanged in the monetary policy in April, stands at eight per cent.
In April, Consumer Price Index-based inflation accelerated to a three-month high of 8.59 per cent, compared with 8.31 percent in March, primarily due to high food prices.
