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In an interview with ETMarkets, Shah said: “We expect RBI to ease its liquidity stance from April 2024 and expect RBI to cut rates in H2 on account of lower inflation and benign global interest rate cycle,” Edited excerpts:
How do you rate the Interim Budget on a scale of 1-10 (10 being the best) and why?
Devang Shah: We will rate the budget as good -10 out of 10 from a fixed income markets perspective. We were looking at the fiscal consolidation and gross and net borrowing numbers, and the budget has delivered a path for fiscal consolidation.
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The fiscal deficit of 5.1% is a positive surprise and the gross borrowing number lower by INR 1 trillion is positively taken across by markets.
What is your call on fixed income space? Yield dropped post Budget – does that hint something?
Devang Shah: We believe that 2024-25 will be the year when we see a structural shift in demand-supply dynamics for Government bonds, lower Gross borrowing, and FPI buying in Government bonds on account of Index inclusion have changed the demand-supply dynamics for the year.
FPI buying accounts for 25% of net borrowing; hence, we believe that Government bonds will remain well supported and see yields to trend lower.
For salaried investors how should one be looking at the Budget – Are there any tweaks required for an MF portfolio?
Devang Shah: No changes in Tax rates for individuals and hence do not see any tweaks in individual portfolios.A lower-than-expected fiscal deficit target of 5.1% of GDP for FY25 and even lower 4.5% by 2025-26 – how do you read this?
Devang Shah: From a fixed-income market perspective its positive on 2 counts:• Lower Gross borrowing leads to lower yields on government bonds
• Fiscal consolidation paves the way for lower inflation and in turn, RBI can look at easing monetary policyYour views on the monetary policy?
Devang Shah: RBI kept rates status-quo in monetary policy. We expect RBI to ease its liquidity stance from April 2024 and expect RBI to cut rates in H2 on account of lower inflation and a benign global interest rate cycle.
What are your views on the US Fed rate for CY24? And how will they impact the debt markets?
Devang Shah: We expect FED to cut rates in April-Jun 2024. We believe once the US Fed starts rate cut cycle, debt markets will start pricing in 25-50 bps of rate cuts from RBI and will see yield drift lower.
Is it a good time to invest fresh money in fixed-income funds?
Devang Shah: We believe that both from fundamental & structural demand-supply dynamics, investors can consider adding duration to their portfolios.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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