Key questions on debt investing: Four veterans share their insights

Usually media-shy, the debt space has recently found it tough to stay away from the limelight. From delay in rate cuts to sticky inflation, from the impending inclusion of Indian bonds in the international index to rising yields in the first quarter of 2024, a lot is happening in the debt world. So, to help our investors navigate the current landscape, we spoke with four veterans in debt management: Anil Bamboli of HDFC AMC , Devang Shah of Axis, Suyash Choudhary of Bandhan and Shriram Ramanathan of HSBC. Here is what they had to say... 1. On delayed rate cuts The rate-cut expectation was growing louder and stronger until 2023. Come 2024, while fund managers still believe that rates have peaked out, the timing of rate cuts has been reset due to persistent inflation globally, particularly in the US. However, one clear thing is the downward direction of rates (as and when it happens). Implications for you While the quantum of expected rate cuts differs across fund managers, they are strategically adding longer-duration bonds to their portfolios. Broadly, returns from short-duration funds have reached a pinnacle of 7-8 per cent, with potential capital appreciation from rate cuts acting as a bonus. Fund manager thoughts Devang Shah : Market expectations for rate cuts have undergone a dramatic shift in the past six months. Back then, investors were aggressively anticipating cuts. Now, the sentiment has swung entirely. Swap curves, which indicate interest rate expectations, currently don't predict any rate cuts next year in India. Even in the US, wherein markets expected aggressive rate cuts, expectations are limited to a single modest 25 basis point cut until December 2024. We believe that if inflation continues to track the trend as envisaged by the Reserve Bank of India (RBI), we can expect a 50-basis-point cut in the next 12 months. Our portfolio positioning reflects a strong belief that we are nearing the peak of

This article was originally published on May 21, 2024.