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'Investors with higher risk appetite and longer horizon (more than one year) can invest in longer-duration funds like corporate bond funds, long-duration funds and gilt funds for maximum gain.'
The expected cut in interest rates in the latter half of this calendar year, along with the global index inclusion-driven demand, bodes well for the domestic debt market,Mihir Vora, chief investment officer, Trust Mutual Fund, tells Abhishek Kumar/Business Standard.
How do you see 2024 panning out for debt funds? What are the risks that you will watch out for?
2024 is likely to see most central banks cutting rates as their fight against inflation appears to be on the last leg.
The US Fed is expected to cut rates as early as March, followed by other central banks.
Yields have already started easing as growth is slowing in most developed economies.
In India, the growth has been resilient and inflation (especially core inflation) has been easing.
The RBI is expected to start on its rate cut cycle in the second half of 2024.
This, combined with additional flows due to global index inclusion, could make 2024 one of the best years for debt markets. Risks can emerge on the geo-political front.
Which debt funds are best placed to deliver this year?
Debt funds in general should do well. Investors with higher risk appetite and longer horizon (more than one year) can invest in longer-duration funds like corporate bond funds, long-duration funds and gilt funds for maximum gain.
Schemes with higher corporate bond exposure can also be looked at, considering the elevated corporate spreads.
With the yields off their peaks and rate cut expected to start later this year, what fund management strategy have you adopted (or planned) to gain from the changing scenario?
In certain funds, we have been increasing duration in a calibrated manner to minimise impact of volatility, given the geopolitical uncertainties.
We are mostly using the five-year and 10-year g-sec papers for that.
In a few schemes, the focus has been on accrual income and low volatility.
In corporate bonds, we are looking at spread compression opportunities.
The corporate spreads appear most elevated in the 2-3 year segment and are presently quite attractive.
MFs have stayed away from credit risk for some years now. As the spreads have now widened, is there merit in investing in lower-rated papers?
In lower-rated papers, the issue is more on the liquidity front than credit.
While the spreads have widened, lower-rated papers in open-ended funds come with a liquidity risk.
There is enough merit to invest in quality lower-rated issuers in closed-ended schemes.
Trust MF is venturing into the equity side. How do you plan to distinguish yourself in this competitive space?
In equities, we will take a growth-biased approach with a strong focus on valuations.
We believe that in high-growth sectors and stocks that have ample runway for growth, analysts tend to overestimate the short-term, but underestimate the long-term potential.
As a result, they end up undervaluing a stock or selling it too early. We will look to stick to our investments and ride the entire upside in those stocks.
What are your earnings growth expectations for Q3? Which sectors are you finding attractive right now?
For the companies in Nifty, we expect about 15 per cent growth in earnings.
The themes we believe in for the next few years are manufacturing, renewables, digitisation, infrastructure, urbanisation, premium consumption, financialisation of savings and the rise of the equity savings cult.
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Feature Presentation: Rajesh Alva/Rediff.com
