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Time of India
3 days ago
- Time of India
Corporate bonds in 2–3 year segment offer ‘best bang for buck': Shriram Ramanathan
With interest rates stabilising and inflation unlikely to drive further monetary easing, investors may want to shift focus to shorter-maturity corporate bonds . Shriram Ramanathan, CIO–Fixed Income at HSBC Mutual Fund, believes the two- to three-year corporate bond segment currently offers the 'best bang for your buck,' combining attractive yields with lower duration risk. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Undo In a recent conversation, he explained why widening spreads and stable rate conditions make this segment a sweet spot for fixed income portfolios. Edited Excerpts – Kshitij Anand: And yes, with inflation coming in at 2.1%, do you see there is room for further rate cuts as well? And yes, we are in a wait-and-watch mode. The RBI has already front-loaded, we would say, for the year 100 basis points. But yes, could there be another rate cut in the offing? Shriram Ramanathan: See, as far as a rate cut is concerned, where we are today, the RBI governor has been fairly clear and, in some ways, you could argue maybe a bit too clear, because it takes away the hope, excitement, and expectations angle of it. That is where the communications part comes into play. But he has been fairly transparent in saying, 'Hey, monetary policy has done its bit. It takes time. Now, we have to wait for it to seep through the economy.' Bonds Corner Powered By Corporate bonds in 2–3 year segment offer 'best bang for buck': Shriram Ramanathan Investors might consider shifting to shorter-maturity corporate bonds. Shriram Ramanathan from HSBC Mutual Fund suggests focusing on two- to three-year bonds. These bonds offer attractive yields with lower risk. Rate cuts depend on growth and US Federal Reserve actions. Short-duration funds and medium-duration funds are good options. Income-plus-arbitrage funds offer tax efficiency. Set your portfolio free: Using bonds to escape the shackles of market volatility GMR Airports' Rs 1,500-crore bond issue to MFs comes up short MTNL defaults on bond repayment due on August 24 India's long bond rally falters as fiscal risks mount, demand ebbs Browse all Bonds News with Kshitij Anand: The transmission has to happen, yes. Shriram Ramanathan: Exactly. And now, for a further rate cut, it really comes down to three things broadly. The first one is obviously CPI. Like you pointed out, CPI has already been fairly below the RBI's earlier projections. There was a huge markdown that they had to do in this particular policy, and the upcoming number is also going to be fairly lower, as per our expectations. So CPI, to a large extent, has already been pre-empted by the RBI through the markdowns they have done in the forecast. I do not think CPI will be the reason for them to go more aggressive with, let us say, further rate cuts. The second factor is growth. And like I alluded to earlier, as and when any growth-negative impacts start becoming clearer—let us say the tariffs become crystallised and there is indeed an impact on the export side or even on our domestic economy—if there is a slowdown and if indeed the 6.5% growth estimate of the RBI turns out to be overoptimistic and needs to be marked down to, let us say, 6.1% or 6.2%, that is one reason why the RBI will start looking at whether more action is required. Live Events Third, and importantly, is the US Fed's action. That is the other thing that has been changing over the last one month. Clearly, markets are now pricing in a September rate cut, more than two rate cuts by the end of this calendar year, and another three to follow next year. That is now driving a lot of other emerging market bond markets as well, because as and when the Fed starts moving, it opens up space for a lot of other EM central banks. The interest rate differentials start widening again, which gives more space and opportunity for EM central banks to act. So, out of the three factors, inflation is unlikely to be the reason for us to embark on any further rate cuts, but growth and US action are two things we are keeping an eye on. We do think that once the Fed starts cutting in September, somewhere in Q4 of this calendar year, the RBI will probably have a little bit more space to maybe cut once—or at most twice—though once is more likely. But yes, that would be almost the end of its arsenal as far as rate cuts are concerned. I do think that space might open up, but that really requires the growth downside to crystallise. Kshitij Anand: Now, we have discussed rate cuts and how central banks are moving, both in India and the US. So just from an investor's perspective, do you think corporate bond funds, especially with up to five years' duration, look attractive now? What are your views on that as well? Shriram Ramanathan: No, I think that is a good question, because so far what has really happened over the last one year is that, broadly, interest rates have been moving lower. Duration funds have obviously had their time in the sun and were delivering good returns. But over the last two months, we have seen— which is typical of any rate-cutting cycle— that towards the bottom of a rate-cutting cycle, rates tend to pre-empt the last few cuts. The longer-end yields make their bottom probably before the last rate cut itself, and that is what we have seen this time around as well. We saw the 10-year bottom out at 6.17% in May, prior to the 50 basis points cut in June. Since then, we have been heading slightly higher. So, the duration play is a lot more tactical now. There is no secular, structural move lower in longer-end rates anymore, which is why corporate bonds start looking more attractive. Once you start drilling down into corporate bonds themselves, I would say the underlying space to look at is probably two- to three-year corporate bonds, because that is where you actually get the best bang for your buck. Yields there are now close to 6.70%—as of now 6.70% to 6.75% for a two-year corporate bond—which is the same as a 12- to 13-year government bond. So, you do not take too much maturity or duration risk, but you still end up getting a fairly attractive yield. Spreads there are close to 80 basis points, the widest we have seen in quite some time—over the last four to five years. These used to be as low as 25-30 basis points about a year to a year and a half back. That is the second reason why corporate bonds in that space are attractive. Now, to your question of which fund category makes the most sense, I would say it is probably the short-duration category, which is actually best targeted towards slightly lower maturity, with less exposure to government bonds and more to the two- to three-year corporate bonds—rather than the corporate bond fund category you refer to. In general, if you look at the industry, I think short-duration funds are better positioned in this segment going forward. Otherwise, you can pick and choose a few corporate bond funds. For example, the HSBC Corporate Bond Fund is specifically positioned in the two- to three-year corporate bond space and has kept the duration fairly low. That is another space I would say is good to look at. So, to your question, it is good to look at short-duration funds or pick and choose a few corporate bond funds with lower maturity and duration and wider spreads—not so much in the five-year duration space you refer to—because that becomes a bit too long, and there is going to be a lot of supply over the coming few quarters in that segment, which will keep those yields high, or maybe push them higher still. The two- to three-year corporate bond space is extremely good, keeps the risk low, and gives you a fantastic carry. Kshitij Anand: But if someone is looking at everything happening on the global and domestic fronts, what is your recommended approach for investors, let's say, who have a 12- to 18-month kind of time horizon? Shriram Ramanathan: From a fixed income perspective, like I said, we are still, in a way, lucky that compared to the way bank fixed deposit rates are coming down very sharply, we still have fairly attractive yields as far as two- to three-year corporate bonds and short-duration funds are concerned— in the 6.75% to 7% zone—which is not a bad space to be in. The second thing I would say is that now that we are in a stable regime, it is good to look at funds with a little bit of a yield-pickup play, wherein, in a measured way, you take exposures to AA+, AA, and AA– papers—maybe 25-30%. Typically, a medium-duration fund would be a category like that, where you start playing the 'instead of 6.75%, can I get 7.25% or 7.5% yield on the portfolio' approach while keeping the risk relatively measured. I think the third thing—and this is a space that has really opened up, but requires a slightly longer investment horizon—is the income-plus-arbitrage fund of funds. That is a very tax-efficient instrument or vehicle available. For a two-year period, you get 12.5% taxation. The underlying is a mix of arbitrage and debt funds, and the good part is that you can actively move across debt funds from one to another, with the fund manager making that choice, and as an investor, you are not impacted on the tax side. So, I would say three products: One, short-duration funds for sure; two, yield-pickup medium-duration funds; and three, income-plus-arbitrage fund of funds. These are the three ways to play the next 18 to 24 months from a fixed income perspective.
Economic Times
4 days ago
- Economic Times
Alternative managers gaining ground: 70% of PMS capital now with non-institutional players, says Manish Bhandari
Edited excerpts: Kshitij Anand: I wanted to understand from you—the geopolitical environment is changing, and it's changing faster than we could have imagined. New tariff rules are coming in, and China is playing its own game. How do you think everything is shaping up at this point in time—good for India, bad for India? Live Events Kshitij Anand: And although there will be people at home who may not welcome or appreciate this India–China development—let's not get into that, as it's more political than financial—economically, we stand to benefit from the partnership? Kshitij Anand: Now, let's talk about sectors. How do you view the sectoral landscape for the next few years? What could be the alpha generators of the future? Kshitij Anand: We've seen new-age businesses gaining traction over the past few years. IPOs have slowed, but the SME space is booming—over 600 IPOs have been listed. Any new thematic businesses catching your eye? Kshitij Anand: On PMS—the industry has evolved rapidly, especially post-COVID, with significant inflows. We're also seeing new strategies launched frequently. Is this good or bad for the industry? (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel In an exclusive conversation with ETMarkets PMS Talk on the sidelines of the APMI conference in Mumbai, Manish Bhandari , CEO & Portfolio Manager at Vallum Capital, highlighted a transformative shift in India's portfolio management services (PMS) to Bhandari, who is also a Board Member of the Association of Portfolio Managers in India (APMI), nearly 70% of institutional capital in the PMS space is now managed by players without traditional institutional backing—a sign that investors increasingly trust independent and boutique managers over large fund attributes this trend to the sector's growing openness, diversity of strategies, and the 'democratization' of money management, where talent and performance are beginning to outweigh brand name and absolutely—and that's the beauty of the geopolitical landscape—it changes so fast. When Trump came in, everyone thought we would have an edge because of our long-standing relationship, but that has not materialised in terms of outcomes, and a different scenario is now interesting and brewing today, in my view, is a new, very solid economic partnership that's taking shape. There has always been a relationship between India and Russia, but now, with China, everything seems quite positive, and we are making inroads to create a favourable such a large economic bloc comes together, strong markets open up for each other, and cooperation increases. While there is a structural headwind until the tariff issue between India and the USA is resolved, there is also a structural long-term dividend if this partnership this morning, we heard that the National Security Advisor flew to Russia—such visits are now frequent and widely publicised. Perhaps the frustration in America is partly due to this new economic bloc being built. I deliberately use the word 'economic bloc' because my focus is on economic progress and structural changes—not cultural aspects—which are secondary. My sense is that Russia has played a key role in bringing India and China human brain holds on to baggage for a long time, but as the narrative changes, that baggage will also change. I believe this shift is happening before our eyes, and it's in both governments' interests to make it work. I see progress daily. As it surfaces on the front pages of newspapers, public perception will also can change overnight—10%, 20%, 25%—so making a definitive prognosis would require being smarter than the US President's tweets, which I'm not, and I'm sure none of us are. To make a compelling investment bet, you need two things: a rising sector and reasonable valuations. A great story with stretched valuations doesn't work. Infrastructure spending seems to have picked up again after a difficult election year. Cement looks promising. Healthcare also remains evergreen. The US still has significant dependence on Indian healthcare, so despite any market pushback, Indian companies have strong growth all of those 600 IPOs are new-age businesses. For me, 'new age' means traditional businesses enhanced by technology to grow faster and disrupt incumbents. These are scattered across small and midcaps, and need to be picked selectively. Auto ancillary is another 'old school' sector with new opportunities coming India's way. Currently, opportunities are dispersed across sectors—there's no single dominant theme like we saw in previous expansion of the market is always good for the industry—there is no second thought about it. There are a lot of strategies emerging because it is quite a democratic system where anyone who aspires to manage external or third-party money can get in today. Otherwise, for decades, the only platform left was to get a job in a mutual fund, and launching your own mutual fund was next to it is quite a democratic expression of investing—different strategies, different ways of looking at the market—everything keeps competition at a reasonably high level, and everyone can learn from each other. I think it is of the growth has also come from EPFO capital and less from retail capital. But one thing I can tell you, which is very interesting, is that if you look at the PMS industry and landscape, and the advisory capital that has been built, 70% of the institutional capital is given to people who have a non-institutional background. They are not backed by large mutual fund-type sets the context that people are giving money to individuals to manage—they are not just looking for institutions. So, individuals can make a remarkable difference.I see this trend coming up significantly, where institutional capital will look for PMS managers or alternative managers—something that has happened in other parts of the world as well.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
Time of India
4 days ago
- Time of India
Alternative managers gaining ground: 70% of PMS capital now with non-institutional players, says Manish Bhandari
Edited excerpts: Kshitij Anand: I wanted to understand from you—the geopolitical environment is changing, and it's changing faster than we could have imagined. New tariff rules are coming in, and China is playing its own game. How do you think everything is shaping up at this point in time—good for India, bad for India? Live Events Kshitij Anand: And although there will be people at home who may not welcome or appreciate this India–China development—let's not get into that, as it's more political than financial—economically, we stand to benefit from the partnership? Kshitij Anand: Now, let's talk about sectors. How do you view the sectoral landscape for the next few years? What could be the alpha generators of the future? Kshitij Anand: We've seen new-age businesses gaining traction over the past few years. IPOs have slowed, but the SME space is booming—over 600 IPOs have been listed. Any new thematic businesses catching your eye? Kshitij Anand: On PMS—the industry has evolved rapidly, especially post-COVID, with significant inflows. We're also seeing new strategies launched frequently. Is this good or bad for the industry? (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel In an exclusive conversation with ETMarkets PMS Talk on the sidelines of the APMI conference in Mumbai, Manish Bhandari , CEO & Portfolio Manager at Vallum Capital, highlighted a transformative shift in India's portfolio management services (PMS) to Bhandari, who is also a Board Member of the Association of Portfolio Managers in India (APMI), nearly 70% of institutional capital in the PMS space is now managed by players without traditional institutional backing—a sign that investors increasingly trust independent and boutique managers over large fund attributes this trend to the sector's growing openness, diversity of strategies, and the 'democratization' of money management, where talent and performance are beginning to outweigh brand name and absolutely—and that's the beauty of the geopolitical landscape—it changes so fast. When Trump came in, everyone thought we would have an edge because of our long-standing relationship, but that has not materialised in terms of outcomes, and a different scenario is now interesting and brewing today, in my view, is a new, very solid economic partnership that's taking shape. There has always been a relationship between India and Russia, but now, with China, everything seems quite positive, and we are making inroads to create a favourable such a large economic bloc comes together, strong markets open up for each other, and cooperation increases. While there is a structural headwind until the tariff issue between India and the USA is resolved, there is also a structural long-term dividend if this partnership this morning, we heard that the National Security Advisor flew to Russia—such visits are now frequent and widely publicised. Perhaps the frustration in America is partly due to this new economic bloc being built. I deliberately use the word 'economic bloc' because my focus is on economic progress and structural changes—not cultural aspects—which are secondary. My sense is that Russia has played a key role in bringing India and China human brain holds on to baggage for a long time, but as the narrative changes, that baggage will also change. I believe this shift is happening before our eyes, and it's in both governments' interests to make it work. I see progress daily. As it surfaces on the front pages of newspapers, public perception will also can change overnight—10%, 20%, 25%—so making a definitive prognosis would require being smarter than the US President's tweets, which I'm not, and I'm sure none of us are. To make a compelling investment bet, you need two things: a rising sector and reasonable valuations. A great story with stretched valuations doesn't work. Infrastructure spending seems to have picked up again after a difficult election year. Cement looks promising. Healthcare also remains evergreen. The US still has significant dependence on Indian healthcare, so despite any market pushback, Indian companies have strong growth all of those 600 IPOs are new-age businesses. For me, 'new age' means traditional businesses enhanced by technology to grow faster and disrupt incumbents. These are scattered across small and midcaps, and need to be picked selectively. Auto ancillary is another 'old school' sector with new opportunities coming India's way. Currently, opportunities are dispersed across sectors—there's no single dominant theme like we saw in previous expansion of the market is always good for the industry—there is no second thought about it. There are a lot of strategies emerging because it is quite a democratic system where anyone who aspires to manage external or third-party money can get in today. Otherwise, for decades, the only platform left was to get a job in a mutual fund, and launching your own mutual fund was next to it is quite a democratic expression of investing—different strategies, different ways of looking at the market—everything keeps competition at a reasonably high level, and everyone can learn from each other. I think it is of the growth has also come from EPFO capital and less from retail capital. But one thing I can tell you, which is very interesting, is that if you look at the PMS industry and landscape, and the advisory capital that has been built, 70% of the institutional capital is given to people who have a non-institutional background. They are not backed by large mutual fund-type sets the context that people are giving money to individuals to manage—they are not just looking for institutions. So, individuals can make a remarkable difference.I see this trend coming up significantly, where institutional capital will look for PMS managers or alternative managers—something that has happened in other parts of the world as well.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
