'Investors should invest in cash and floating rate funds'

 
Rajiv Anand heads the invetsment deaprtment of Standard Chartered Mutual Fund. He worked in HSBC's treasury department for 4 years and was also associated with Standard Chartered Grindlays Bank for 3 years, before finally shifting to Standard Chartered Mutual Fund.

In an exclusive interview with Personalfn, Anand shared his views on the monetary policy and how interest rates and inflation are expected to unfold going forward.

What is your view on the monetary policy?

The hike in reverse repo rate has come as a bit of a surprise for the market in general although participants have been arguing for some time the pros and cons with regarding to such an action. The RBI clearly recognises the importance of maintaining price stability and thereby curtail inflationary expectations. Accordingly, it has proactively raised rates to do the same. The decision to review policy on a quarterly basis is clearly a sign of the uncertain macro-environment much of which is outside the control of a country's central bank. Overall, the policy has kept market participants cautious.

How do you expect interest rates to react over the short term and long term?

Participants will continue to be cautious reflecting much the same sentiment as the RBI. With the next policy due only a quarter away, market will again have to take a call on the next action from the central bank. Meanwhile, the continuous supply of bonds during the course of the year will ensure that the yield curve remains under pressure. Hence, we expect yields to rise further till a point where some sort of equilibrium is achieved between market demand and supply from the government borrowing.

Do you expect inflation to be a bother going forward?

The central bank recognises the uncertainty on inflation which essentially stems from two factors: one, the fate of oil in international markets; and two, its transmission into domestic prices. Given this, we expect inflation to very much remain one of the top look-outs for the market in the time ahead.

Debt markets haven't reacted too well to the policy. What is your view on the same?

Given that a rate hike has been delivered and the RBI recognises the uncertainties ahead, it is hardly surprising that debt markets have not been too enthusiastic with regard to the policy. Sentiment is also depressed due to the large supply of bonds that needs to be absorbed in the balance fiscal.

What kind of a maturity profile are you looking at in your long-term debt fund?

We maintain a cautious view on the market and our maturity profile continues in line with this view.

What is your advice to the retail investor at this stage?

Retail investors should continue to invest in accrual schemes like cash and floating rate funds. The long term floating rate funds are also a good option for a slightly longer horizon. Additionally, fixed maturity plans will continue to fetch relatively stable returns in an otherwise volatile market.

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