Debt Funds to Buy Af­ter RBI Hints No Rate Cut Likely Soon

The Economic Times - - The Infosys Saga -

Mum­bai: The change in the Re­serve Bank of In­dia’s stance from “ac­com­moda­tive” to “neu­tral”sent­bondyield­ssoar­in­glast­week, lead­ing to a mas­sive fall in NAVs of debt funds. The av­er­age medium-term and longterm bond fund fell 2.5% in two days, wip­ing out the gains of the past two months. Other cat­e­gories such as dy­namic bond funds, in­come funds and short-term debt funds also fell, though the de­cline was not as steep.

In sim­ple English, an “ac­com­moda­tive” stance im­plies that the RBI may cut rates in the­fu­ture.Thathas­now­turnedto“neu­tral”, which means the RBI may keep rates sta­ble and fu­ture rate cuts are pos­si­ble only if in­fla­tion or growth are lower than ex­pected.

Fund man­agers say this will change the out­look for the bond mar­ket and debt funds. “We don’t ex­pect any repo cut for a long time, un­less some sud­den developments war­rant such a cut,” says Ku­maresh Ra­makr­ish­nan, head, fixed in­come at DHFL Pramer­ica Mu­tual Fund.

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