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Economic Times
2 days ago
- Business
- Economic Times
Corporate bonds in 2–3 year segment offer ‘best bang for buck': Shriram Ramanathan
Shriram Ramanathan from HSBC Mutual Fund suggests focusing on two- to three-year bonds With interest rates stabilising and inflation unlikely to drive further monetary easing, investors may want to shift focus to shorter-maturity corporate 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 a recent conversation, he explained why widening spreads and stable rate conditions make this segment a sweet spot for fixed income portfolios. Edited Excerpts – 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.' 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. 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 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. 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 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 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 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 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 you do not take too much maturity or duration risk, but you still end up getting a fairly attractive there are close to 80 basis points, the widest we have seen in quite some time—over the last four to five 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 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 two- to three-year corporate bond space is extremely good, keeps the risk low, and gives you a fantastic carry. 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% 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 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.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Time of India
2 days ago
- Business
- 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.
India Gazette
14-07-2025
- Business
- India Gazette
India's growth cycle bottoming out; interest rate, decline in crude prices & normal monsoon support growth ahead: HSBC
New Delhi [India], July 14 (ANI): India's economic growth cycle may be bottoming out, supported by a combination of favorable macroeconomic factors such as the interest rate and liquidity cycle, a decline in crude oil prices, and a forecast of a normal monsoon, according to a report by HSBC Mutual Fund. The report highlighted that these supportive factors could help drive a pick-up in growth in the coming quarters. 'We believe growth cycle in India may be bottoming out. Interest rate and liquidity cycle, decline in crude prices and normal monsoon are all supportive of a pick-up in growth going forward,' the report stated. While global trade related uncertainties are expected to remain a headwind to private capital expenditure in the near term, the report expressed optimism over the country's investment prospects. The report expects India's investment cycle to be on a medium-term uptrend. This will be driven by sustained government spending on infrastructure and manufacturing, an increase in private investments, and a recovery in the real estate sector. In addition, the report pointed out that higher private sector investments in renewable energy and related supply chains, localization of higher end technology components, and India becoming a more meaningful part of global supply chains could support faster economic growth. On the markets front, the report noted that Nifty valuations have moved to a premium compared to their 5-year and 10-year averages following the recent rally. However, the fund remains constructive on Indian equities due to a robust medium-term growth outlook. The report also acknowledged the challenges in the global macro environment, including heightened geopolitical and economic uncertainties. A key concern it raised was the announcement of reciprocal tariffs by the US administration, which could significantly affect both US and global growth if the tariffs remain in place. Despite the challenges, the report stated that India's GDP growth has accelerated further to 7.4 per cent year-on-year in Q4FY25. The report also noted that the government has made efforts to address the slowdown in private consumption, particularly through income tax rate cuts announced in the Union Budget. With the US dollar weakening and crude oil prices declining, the report believed that the space for further policy easing has expanded. The forecast of an above-normal monsoon is also expected to be a positive driver for rural demand. (ANI)
Economic Times
14-07-2025
- Business
- Economic Times
India's growth cycle bottoming out; interest rate, decline in crude prices & normal monsoon support growth ahead: HSBC
Synopsis HSBC Mutual Fund reports India's economic growth may be bottoming out, fueled by favorable interest rates, liquidity, lower crude oil prices, and a normal monsoon forecast. While global trade uncertainties pose a risk, sustained government spending, increased private investments, and real estate recovery are expected to drive medium-term investment growth. Despite global challenges, India's GDP grew 7.4% in Q4FY25. ANI India's growth cycle bottoming out; interest rate, decline in crude prices & normal monsoon support growth ahead: HSBC India's economic growth cycle may be bottoming out, supported by a combination of favorable macroeconomic factors such as the interest rate and liquidity cycle, a decline in crude oil prices, and a forecast of a normal monsoon, according to a report by HSBC Mutual report highlighted that these supportive factors could help drive a pick-up in growth in the coming quarters."We believe growth cycle in India may be bottoming out. Interest rate and liquidity cycle, decline in crude prices and normal monsoon are all supportive of a pick-up in growth going forward," the report global trade related uncertainties are expected to remain a headwind to private capital expenditure in the near term, the report expressed optimism over the country's investment report expects India's investment cycle to be on a medium-term uptrend. This will be driven by sustained government spending on infrastructure and manufacturing, an increase in private investments, and a recovery in the real estate sector. In addition, the report pointed out that higher private sector investments in renewable energy and related supply chains, localization of higher end technology components, and India becoming a more meaningful part of global supply chains could support faster economic the markets front, the report noted that Nifty valuations have moved to a premium compared to their 5-year and 10-year averages following the recent rally. However, the fund remains constructive on Indian equities due to a robust medium-term growth report also acknowledged the challenges in the global macro environment, including heightened geopolitical and economic uncertainties.A key concern it raised was the announcement of reciprocal tariffs by the US administration, which could significantly affect both US and global growth if the tariffs remain in the challenges, the report stated that India's GDP growth has accelerated further to 7.4 per cent year-on-year in report also noted that the government has made efforts to address the slowdown in private consumption, particularly through income tax rate cuts announced in the Union the US dollar weakening and crude oil prices declining, the report believed that the space for further policy easing has expanded. The forecast of an above-normal monsoon is also expected to be a positive driver for rural demand. (ANI)
Time of India
14-07-2025
- Business
- Time of India
India's growth cycle bottoming out; interest rate, decline in crude prices & normal monsoon support growth ahead: HSBC
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads India's economic growth cycle may be bottoming out, supported by a combination of favorable macroeconomic factors such as the interest rate and liquidity cycle, a decline in crude oil prices, and a forecast of a normal monsoon, according to a report by HSBC Mutual Fund The report highlighted that these supportive factors could help drive a pick-up in growth in the coming quarters."We believe growth cycle in India may be bottoming out. Interest rate and liquidity cycle, decline in crude prices and normal monsoon are all supportive of a pick-up in growth going forward," the report global trade related uncertainties are expected to remain a headwind to private capital expenditure in the near term, the report expressed optimism over the country's investment report expects India's investment cycle to be on a medium-term uptrend. This will be driven by sustained government spending on infrastructure and manufacturing, an increase in private investments, and a recovery in the real estate addition, the report pointed out that higher private sector investments in renewable energy and related supply chains, localization of higher end technology components, and India becoming a more meaningful part of global supply chains could support faster economic the markets front, the report noted that Nifty valuations have moved to a premium compared to their 5-year and 10-year averages following the recent rally. However, the fund remains constructive on Indian equities due to a robust medium-term growth report also acknowledged the challenges in the global macro environment, including heightened geopolitical and economic uncertainties.A key concern it raised was the announcement of reciprocal tariffs by the US administration, which could significantly affect both US and global growth if the tariffs remain in the challenges, the report stated that India's GDP growth has accelerated further to 7.4 per cent year-on-year in report also noted that the government has made efforts to address the slowdown in private consumption, particularly through income tax rate cuts announced in the Union the US dollar weakening and crude oil prices declining, the report believed that the space for further policy easing has expanded. The forecast of an above-normal monsoon is also expected to be a positive driver for rural demand. (ANI)
