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In this episode of Bond Street, presented by IndiaBonds on CNBC-TV18, Suyash Choudhary, Chief Investment Officer – Fixed Income, Bandhan AMC, decodes India’s bond market outlook amid RBI policy shifts, rising global yields and rupee volatility. He shares insights on G-Sec yields, foreign investor flows, investment opportunities across government and corporate bonds, and the role of Online Bond Platform Providers in expanding retail participation. Discover whether investors should lock in current yields or stagger investments, and what lies ahead for India’s fixed-income market. #BondStreet#IndiaBonds#CNBCTV18#FixedIncome#BondMarket#BandhanAMC#Partnered
Welcome to Bond Street and joining us on the show today Suresh Chaudhary who is Chief Investment Officer at Fixed Income Mandan AMC Sushi. Thank you so much for joining in. RBI has set a 5.5% and move to calibrated tightening. Are you looking at this as a short term adjustments or do you think this is a longer term pattern change that we have seen coming from the regulator? Hi Manisha, Thank you for inviting me today. So we do think this is the start of a cycle. We think there is another 75 to 100 basis points of rate hikes to go in the current policy cycle. And most fundamentally why we think so is, you know average inflation this year and next year is probably going to be at least between 5 and 6%. And if you're just targeting some sort of a positive real policy rate and bear in mind that globally real policy rate settings are moving up, then you have to lift the repo rate at least to the six quarter, six half area. So for that reason, we do think 75 to 100 basis points more which will effectively unwind this entire rate cut cycle. Should be expected. So with 75 to 100 basis points, would you say all of that has now been factored into the market in this 10 year GSEC field that we are looking at? I wouldn't say so. So you know, the framework we are operating with with regard to bonds is this is first and foremost a very intense competition for capital at a global level. So think about, you know, in the post pandemic era, first of all, fiscal deficit settings in large developed markets really ballooned. Now before those deficits could sustainably consolidate. You are now experiencing a massive AI KPIX buildout cycle. So in some sense there is too much bond supply around the world. Which is all competing for the same pool of capital. And therefore, the latest manifestation of this is in the form of the so-called real bond yields rising, which is basically the difference between nominal bond yields and forward inflation expectation. And that is a point of concern for us in India, a country that runs a current account deficit. So our current account deficit setting is modest. We have fundamental macroeconomic stability. At the same time, we have to compete for this same capital pool, which now has many more asks to it. The other impact of the higher fiscal deficit and the AI build out, not to mention the massive geopolitical concerns around the world is with respect to inflation that is not allowing central banks to infuse more liquidity. So you know that pressure valve is also not releasing itself. So for the time being, we think the dominant framework therefore to use is this competition for capital and therefore we would not look at I10 year versus the India repo rate alone. But I10 year real bond setting versus some of the other major real bond settings around the world. Sure. And from that standpoint unless the AI CapEx or the commodity trade unwinds, we don't find a seven quarter to seven half setting on the I10 year as fairly lucrative. We don't think it is yet as lucrative given this context. Now if you know these drivers were to unwind then of course it would become lucrative. So every morning when you start trade. So we do look at the international markets on what has happened. Overnight And would you say it really is about the US Treasury markets which seems to be driving Indian markets therein or do you think there are various domestic factors at play as well? We think it is a combination of global real yield setting and the direction of the US dollar. So what is also changed in the recent few months is the dollar seems to be appreciating again. Which in turn we think is linked to the fact that markets now find Fed credible with respect to the inflation target. So markets have built back interest rate hikes from the Fed. And also we are seeing in concurrent economic data that there is a chance that U.S. economy is real accelerating. To some extent it is true for parts of Europe as well. So suddenly over the last few months, you have had a real acceleration and commodity prices. You have, you know, higher global real bond yields and you have direction of the dollar changing. Unfortunately, each one of these is a potential headwind for India bonds. So we think right now it's a variety of things. What we look at closely is the direction of the Aikens buildout rate and, you know, incremental pressures on the commodity side. I also want to talk about the Indian rupee, which seem to be looking at a lot of, you know, factors from all sides. To begin with, we've seen the FCNR B bring in a lot of liquidity into the Indian markets and we've seen rupee react to that. But the rupee seems to be reacting to a lot of things right now. From where we stand currently, what is your sense on what direction are we moving in the RBI measures over the weekend? Have moved the currency in some way, supported it in some way, but going forward, what is it that the foreign investors or the money markets are looking at in rupee, in what site? So I think more than the level of the rupee, it is the pace of move and whether we can turn the capital account story. Sure, right. So I don't think you know 95 or 97 matters as much so long as market generally believes that it is an orderly pace of depreciation. And at some juncture, the capital flow story can turn. For the time being to us, there doesn't look to be too much reason to be optimistic because like I said, the three incremental drivers which is higher real yields, the direction of U.S. dollar and commodities unfortunately are all adverse to us for the time being. And so you know, for the time being, we don't think you know there is too much appreciation in the rupee. At the same time, we don't trade the rupee directly. So we don't take a level call there. Only to the extent that it defines our macro view. Let's talk about the investors now. And with this, all this volatility in the yields and the rupee as well, what should he should be an investor be doing right now? Is it about locking or staggering your investments? So if you are a saver, you know one of the good things that is happening is bond yields are rising, right? So. Which means that eventually at whatever point they start to settle down at a higher level, your so-called real return which is the inflation beating positive, you know return from bonds is going to be higher. So at the juncture, our current view is that one should be conservative on market risk, allow for a rate setting to find its equilibrium given the new realities or the realities turn. But for the time being, we think conservatism is is probably more advisable. But at some juncture one has to look forward to a level of bond yields which provides much better compensation to save us than what used to be the case before. And the good thing is very high quality bond yields are rising. So you needn't even go down the credit ladder, take too much credit risk to basically, you know, eventually be able to construct a portfolio which delivers significant real positive returns is just that. I don't think the time has come yet. Umm, I also want to talk about the best risk adjusted value across G6 as you just mentioned. And while we are looking at A rated corporates do quite well. Is it about AAA? Do you, are you also looking at liquidity now slightly below that too? So. You know like you said risk adjusted performance matters the sequence of selection when market is. You know, finding a top on yields is basically you first move from the most liquid. And then as spreads open up on lower rated paper, depending upon your risk appetite, you could potentially, you know, go there. Our own risk philosophy is heavily biased towards quality and because we find more than anything in Indian market, most of the liquidity resides in the best quality names. But even if you were disposed towards buying higher yield, lower rated bonds, I would say the first port of call still has to be the highest quality. And I would also say that if you are delving down the credit ladder, it has to be backed by enough credit research. So many times we find that just the standalone yield is enough for many investors to get drawn in without realizing what kind of credit quality they are getting into. So that will also matter at whatever juncture credit selection comes into play. If you look at the last couple of years, so Shallot has changed in sense of regulatory and policy to ensure that the bond markets are now accessible to retailers. From where we stand right now, what would you say needs to be done more in sense of? Structural or policy regulation, et cetera, to deepen it further, so. You know, obviously tax parity for fixed income mutual funds is something that is obviously you know need to be relook at. These are income creating assets. They have a significant role in both, you know, company raising as well as investors to build their portfolios. And you know, that would potentially lead to the next round of, you know, penetration of debt mutual funds into retail as well, just as equity has done over the last few years. I would say these direct bond platforms are also playing their role in terms of greater access to retail. But in all of this, I would reiterate that the focus should be on risk adjusted return. And if you are a do-it-yourself person buying bonds directly, then you must also be spending at least as much time in doing your credit research either directly or via, you know, some professional because you know, just the standalone yield is probably not enough to make the decision. We heard that. Question. Thank you so much for joining us here at CNBC TV 18 today. Thanks, man. Thank you.