Kotak Mutual Fund’s Post

Transcript

While the equity markets may be facing volatility, what is strong is India's bond markets. Let's discuss the outlook for the months to come. I have with me Abhishek Basin in the head of fixed income with Kotak Mahindra Asset Management Company Limited. Hi Abhishek, wishing you a very happy Diwali. Let's start off with what's lending the Indian bond market that relative strength because today we are looking at yields being particularly attractive for India. Taking this question actually if you look at, we have been highlighting about the India fundamental story for some time now. And if you observe this fundamental story is actually unfolding gradually. Now what fundamental story I'm talking about, this is especially to do with the fiscal profile which we have done exceedingly well. Another thing is if you look at the India and GDP growth in terms of world, we are going to be in top three economies in let's say. Over the next five years, this can be a slightly longish trainer, but the direction is very clear. So if you join the dots, we believe that there is a possibility, a clear possibility of a rating upgrade. Now this rating upgrade is going to take you in a different league altogether. So once you are there in that league. Other window opens if you've played snakes and ladder in the childhood, probably something like that. This is just like a ladder will take you different league altogether. Now what is that? That is including in either the Bloomberg or larger indices or a Footsie larger ones. So this is a trillion dollar club moment you get into that multiple dollar, multiple billions of dollar flows come into India. So this thing is getting brewed very, very slowly, which is not evident at this point in time. But yes, the direction is very much. In line with what story which is getting built currently. Now it's also the US yields and the US dollar that are pretty strong. Uh, what's your take on their impact on India's rupee and Indian yields? Again, a good one. So this one-on-one correlation we spoke about earlier as well has sort of broken as far as fixed income is concerned. And earlier what used to happen was when US used to move let's say upwards in 10 basis points or so. India used to move 12:15 or 20 depending on what kind of scenario it was. But if you observe offload the spreads if compressed significantly, which is inherently reflecting what we discussed in the previous question now. What is happening in the US markets? There are a couple of events which are brewing ahead of what is happening in the geopolitical space. S geopolitical space is whatever was happening for some time now there is an election in the US which is one of the big event and it is going to change the political landscape. And in such kind of event when it is especially towards the end of the year, the risk aversion gets reflected in the US tragedies across the world. So this is what is getting paired for. For the time being, because people are they don't want to bet on anything at this point in time and it is slightly getting exaggerated as at the same time because we are in a decelerating kind of mode, but still there's a sharp move upwards. So if you put in numbers from 370, we've gone almost 435, which is good 65 basis point spike in the bond yields. While 370 was exaggerated on the other wave, 435 also probably is maybe. You can say it is a comfortable zone. Market is kind of balanced as far as the tragedies are concerned. So it should not lead to any kind of major spikes irrespective of the outcome. Overall, the trend will build. Once the government is there, a policy is get formed out. So it is going to build over a period of time. There is no threat as such to India. If you look at in terms of currency, the dollar appreciated significantly over the last one month about 4% while the inner depreciated just. Half percent or so, despite in rupee terms almost a lack crore worth of outflow and probably more so if you look at that magnitude. Actually we would have depreciated a lot. But given the fundamental strength, active RBI effects, reserves all put together, we have done exceedingly good job. What's the outlook on Indian yields from here on? So Indian yields are if we just talk about a broad trend, we are on a decelerating cycle. We've seen a peak of rates a near term data was in terms of inflation if you look at was slightly negative if we can say, but that was a known fact. It is not a surprise and inflation of one of or maybe a two couple of data points is not going to deter anything. All it can do maybe give you an opportunity to enter the markets. But if you look at a broader trend it. Has not changed the picture at all in terms of inflation. Now we have on the month end we have a growth data as well. So that is going to be a critical part, however. Since GDP doesn't, it's not as volatile as the inflation number overall picture seems to be. We are in a decelerating rate cut rate cycle and if not in December, but. Coming in February, a rate cut. Probability will increase significantly. However, if the data surprises you on the lower side, let's say closer to six half on the GDP which is a low probability. But if that happens then the probability for December cut increases significantly. By the time behind the policy, we will have lot clarity on the developed market in terms of US elections and war scenario which intensified so far probably will be much more clearer. But one thing which market has missed out or not giving any significant. Wondering is the oil, oil is trading at closer to $70.00 mark, which is a very good combination for us. US strategies being let's say closer to four half and oil at $65 is a much better combination than U.S. Treasury 370 and oil at 90. So you know, overall it is very important aspect for the Indian economy to perform well in the rates will lead lower. Alright, Abhishek, thank you so much for that. That's the word coming in on the. Indian debt market. Thank you so much for watching. Stay tuned to Kotak Mutual Fund. Mutual fund investments are subject to market risks. Read all scheme related documents carefully.