Fixed Income Outlook: Sideways rates offer opportunities in short-to medium-term debt funds
fixed income market
remains resilient despite global headwinds, with stable macroeconomic indicators supporting investor sentiment.
According to Avnish Jain, Head – Fixed Income,
Canara Robeco Asset Management Company
, recent global trade tensions and the imposition of a 25% tariff by the US have added uncertainty to the global economic landscape.
However, India continues to stand out, with
inflation
undershooting forecasts in the first quarter and remaining well below the Reserve Bank of India's (RBI) 4% target.
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Fixed Income Outlook: Sideways rates offer opportunities in short-to medium-term debt funds
India's fixed income market remains steady despite global uncertainty. With inflation below the RBI's target and yields expected to stay in a narrow range, Canara Robeco's Avnish Jain advises focusing on short- to medium-term debt funds for better risk-adjusted returns, while keeping selective long-duration exposure for potential policy easing gains.
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Jain noted that the RBI's recent shift to a neutral stance suggests a pause in the current rate-cut cycle. Nevertheless, 'if the undershoot of inflation continues for the next one or two quarters, there is an expectation that the RBI may deliver one more 25 bps rate cut by December,' he said.
In terms of yields, Jain expects the 10-year government bond benchmark to trade in the 6.30%–6.45% range in the near term.
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Market movements will likely be driven by a combination of global and domestic factors—international crude oil prices, US Treasury yields, and geopolitical developments on one hand, and India's inflation trajectory and growth data on the other.
Importantly, he does not foresee any major sell-offs in the bond market, citing a healthy demand-supply balance and continued appetite for government securities from institutional investors.
Given this backdrop, Jain believes that duration strategies may not deliver significant returns in a largely sideways interest rate environment.
Instead, he recommends that investors focus on short- to medium-term
fixed income
categories such as corporate bond funds, short duration funds, and banking & PSU
debt funds
, which are positioned to offer better risk-adjusted returns in the current scenario.
For long-term investors, maintaining selective exposure to duration could still be valuable—particularly if an additional policy easing materialises later this year.
Such a move could provide capital gains potential while retaining the carry benefits of high-quality long-duration instruments.
Overall, Jain's outlook suggests a balanced approach: tactically positioning portfolios to benefit from steady yields in the short term, while keeping optionality open for potential gains if monetary policy turns more accommodative.
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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