Perspective on fixed income markets for the year 2014 and outlook on 2015 on the debt markets
Year gone by:- CY 2014 has been quite fruitful for fixed income markets. Yields tapered down on expectations of moderation in inflation
- CPI decelerated much faster than what street expected, leading to pre mature rate cut expectations
- RBI took cognizance of the falling trajectory of CPI and acknowledged a possible need for a rate action
- Liquidity by and large was orderly, keeping shorter end of the yield curve supported
- Bond and gilt funds were big beneficiaries of such a scenario posting double digit returns for the investors
What to expect in the New Year:
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- Commodity led disinflation to continue in 2015
- In India, 2 key commodities drive our CAD as also inflationary expectations to some extent - oil & gold. Trend for these 2 commodities likely to be benign, subject to no major shocks. Gold demand could pick up a bit compared to last year given the scrapping of 80:20 rule
- Case for benchmark rate easing could happen in CY 2015
- Interest rates could ease by 50-75 bps
- Yield curve across tenures likely to moderate..
- Duration funds likely to do well in the fixed income pack
Key risks to watch out for:
INR - the strengthening of the USD could be some pressure on INR going forward
US hiking interest rates could well be a reality in CY 2015, though latter part of the year
FII flows which aided CY 14 could be a tad under pressure if INR continues to be wobbly.
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