“After the focus on inflation from the U.S. and the Indian central bank, rate cuts are out of the picture for the time being and in such a scenario, three-month T-bills is the safest bet,” said Raju Sharma, head of fixed income at IDBI Mutual Fund.
Mutual funds have sold a net 124 billion rupees ($1.51 billion) worth of government bonds from June 8 to June 22, while purchasing T-bills worth over 256 billion rupees in the secondary market, Clearing Corp of India data showed.
During this period, the Reserve Bank of India held rates steady again but signalled monetary conditions will remain tight, and while the Federal Reserve also held steady, it said rates will have to increase another half percentage point by year’s end.
Funds have also remained active buyers of T-bills at primary auctions, market participants said, as they look to maximise their returns by adjusting their portfolios.
“Mutual funds have booked profits by selling long bonds and reducing the interest rate risk in the portfolios,” said Sandeep Bagla, CEO of Trust Mutual Fund. Fund managers have now pushed expectations of rate cuts to the next financial year. Vikas Garg, fixed income head at Invesco Mutual Fund, said he expects a long pause in India as inflation remains clear of the RBI’s 4% target and global rate cuts will also be delayed.
And much like central bankers, fund managers too will be keeping a close eye on inflation.
“Market will continue to monitor inflation trajectory, which appears to be of concern, especially with the El-Nino impact,” IDBI MF’s Sharma said. ($1 = 82.0150 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Swati Bhat and Savio D’Souza)
