HARSHSHREE INVESTMENT

Mr. Shriram Ramanathan

Chief Investment Officer - FIXED INCOME, HSBC Mutual Fund

CIO - Fixed Income, overseeing the management of about INR40,000cr (~USD 8bn), in assets across various Fixed income and Hybrid funds (INR only).

He has been in the Asset Management business since 2001 and has over 22 years of experience in fixed income markets.

Prior to joining HSBC Asset Management, he was Head of Fixed Income at L&T Investment Management Limited (2012-2022).

From 2010-2012, he was Portfolio Manager at Fidelity (FIL) Fund Management managing their India domiciled INR FI funds.

From 2005-2009, Shriram was based in Hong Kong at ING Investment Management Asia Pacific, where he managed multi currency portfolios as Senior portfolio Manager, Global EMD (Asia) - co-managing the Asian portion of Emerging Market Debt funds, with focus on sovereign HC and LC rates/ FX, as well as pure Asia local currency funds / mandates.

His earlier assignments were with ING Investment Management India as Fixed Income Fund Manager, Zurich Asset Management Company in fixed income research and with the Treasury department of ICICI Ltd, where he started his career in investments in 2000.

Shriram is a Chartered Financial Analyst and holds a Post Graduate Diploma in Business Management from XLRI Jamshedpur and an Engineering degree from the University of Mumbai.

Q1. To maintain liquidity, the RBI has implemented several measures, including the highest net OMO purchase activity in India since FY21. Now that there is a surplus in the system, how do you see the RBI's focus evolving, and what could be its next steps to sustain economic growth?

Ans 1. RBI has been extremely proactive in managing liquidity over the last few months, delivering more than market expectations. The below table highlights the liquidity tools utilized by RBI over the last few months. By the end of April 2025, RBI would have injected around INR 7.3 Lakh Crs worth of durable liquidity into the system (including CRR cut, OMO purchases and FX Buy Sell Swap).

In the recent Monetary Policy Committee (MPC) meeting, the Governor emphasized that the RBI is committed to provide sufficient system liquidity and will proactively take appropriate measures to ensure liquidity remains adequate. At the press conference, the Governor indicated that a surplus of around 1% of net demand and time liabilities (NDTL) was considered as a reasonable assessment of liquidity. RBI believes that maintaining this surplus is essential to ensure that the policy easing conducted till now and future rate cuts get transmitted effectively into the economy. We believe RBI will continue to support growth through further policy easing and liquidity infusion.

Q2. What are your expectations for the interest rate cycle, considering the growing indications of potential easing? Reports suggest that the RBI governor may lean toward lowering interest rates further. Are you anticipating a mild or more significant easing, and what assumptions are you factoring in for interest rates in India?

Ans 2. Domestic inflation has softened considerably, with the last two inflation prints significantly below 4%. The outlook for food inflation has turned decisively positive on robust agriculture output. RBI expects headline inflation to remain below 4% for the next three quarters and FY2026 inflation to be at 4%. Recent fall in crude prices also augers well from a domestic inflation perspective. On the other hand, RBI revised lower their GDP forecasts, with FY2026 GDP now expected at 6.50%. With global trade and tariff related policies clearly expected to impede growth, risks of growth numbers undershooting estimates remain. Against this backdrop, we believe RBI will continue to support growth through further policy easing and liquidity infusion.

Additionally, the stance change to ‘accommodative' in the recent MPC meeting clearly indicates a dovish shift in policy guidance, and implies that the current easing cycle could see deeper rate cuts than earlier envisaged. We expect RBI to further cut rates by another 50-75 bps taking the terminal rate to 5.25%-5.50%, assuming inflation remains in line with RBI estimates.

Q3. Indian bond yields have been hitting three-year lows, driven by the RBI's OMO purchases and global market dynamics. How do you see bond yields evolving from here, and what's your perspective on their future movement?

Ans 3. Indian bonds continue to see positive momentum. What started initially, with the global index inclusion (adding another significant investor segment to Indian bonds), continued with domestic demand supply turning favourable driven by fiscal discipline demonstrated by the Government, positive growth in AUMs of domestic investor segments and followed up by easing in policy rates, liquidity infusion and large OMO purchases conducted by the RBI. India has remained resilient even in an environment of increased volatility in global markets, given RBI's proactive and timely measures.

However, we believe that there are further legs to this rally. We expect RBI to further cut rates by another 50-75 bps taking the terminal rate to 5.25%-5.50%. We also expect RBI to remain proactive on liquidity measures. RBI is also expected to transfer dividend to the Government to the tune of around INR 2.5 Lakh Crs in May, which will be positive for Government bonds. Corporate bond spreads also remain fairly high, and with liquidity expected to remain positive, we expect to see spread compression in corporate bonds. We continue to expect yields to move decisively lower, along with steepening of the yield curve and encourage investors to have adequate duration in their portfolios to benefit from lower rates, subject to their risk return frameworks.

Q4. S&P has revised India's GDP forecast downward by 20 bps, from 6.7% to 6.5%. Do you believe this downgrade is primarily due to tariff-related uncertainties, or could internal factors like commodity inflation, monsoon conditions, or other headwinds also be contributing? What do you think is the rationale behind this downward revision in India's GDP outlook?

Ans 4. We believe the downward revision of India's GDP by S&P from 6.7% to 6.5% reflects a combination of both global and domestic challenges. While tariff-related uncertainties and global trade tensions largely contribute to the revision, domestic factors also cannot be ignored. Slow capex revival along with muted pick in exports have impacted growth.

However, manufacturing activity is showing signs of revival and the services sector remains resilient. Investment activity is picking up on the back of the Government's push on infrastructure spending. While monsoons are expected to remain normal this year, the impact of heat waves will have to be monitored. From a debt market point of view, the underlying factors support a cautious outlook on growth and are likely to push RBI to stay accommodative for longer.

Q5. Do you believe bonds currently present a better investment opportunity than equities, given the rising uncertainty and stretched valuations?

Ans 5. Equities, both globally and domestically have remained fairly volatile over the last few months. Risks of recessionary impact in the US along with increased risks of tariffs and global trade wars along with stretched valuations can continue to keep equity markets volatile.

On the other hand, under a proactive RBI along with strong domestic macro fundamentals, benign inflation and relatively stable currency, we believe Indian debt markets are appropriately placed to offer favourable risk reward to investors. For investors looking at safety and steady income, Indian bond markets offer good value along with asset diversification and predictability in returns at relatively lower risk. Not only can investors benefit from steady income they can also possibly generate alpha in a falling interest rate environment while staying invested for a medium-term investment horizon. Corporate bond spreads also remain high, which are likely to benefit from spread compression in an easy liquidity environment.

We continue to expect yields to move lower, along with steepening of the yield curve and encourage investors to have adequate duration in their portfolios to benefit from lower rates, subject to their risk return frameworks.

Q6. As a Debt Fund Manager, what difference do you see in the thought process of two governors in terms of Liquidity, Inflation, and Growth?

Ans 6. While both Governors operated in different global and domestic macro environments, we observed few differences in the approaches of the two RBI Governors on different factors like liquidity, inflation, growth and currency.

In the earlier regime, just shortly after the Governor took over, the world was hit by the pandemic, which required the RBI to strongly support growth and keep easy liquidity in the system for a longer period of time for smooth functioning of the economy. This was broadly in line with what other Central Banks did during that period. However, once inflation picked up RBI had to tighten monetary policy. Over the last two-three years growth picked up sharply, and hence the primary focus remained on controlling inflation resulting in tighter monetary policy and subsequently tighter liquidity conditions. This was also because we saw multiple instances of sharp increase in food inflation due to various factors, which made it imperative to operate with primary focus on inflation. Hence, in the earlier regime the approach was more cautious and focused on protecting the economy from high inflation risks, as was the need of the hour. The Governor also believed that markets should operate in a low volatility environment as it allows smooth functioning of financial markets, which resulted in a period where Rupee became one of the least volatile currencies as RBI continuously intervened to keep Rupee fairly stable.

In the current regime, the Governor is seen to be prompt and more proactive in his actions. During the period where Dollar strengthened considerably, RBI let Rupee depreciate in line with other currencies to keep it competitive, but once RBI felt that speculative positions were building up, they intervened strongly to discourage such moves. Once, inflation turned benign, RBI focused attention towards growth, as was again the need of the hour. Not only did RBI begin easing rates, it also infused considerable amounts of durable liquidity into the system to ensure that rate transmission happens smoothly and promptly in the economy. One key difference observed was in the communication of policy stance by the Governors. While earlier there was some ambiguity in market participants pertaining to reference of stance (whether it referred to rate trajectory or liquidity), the current Governor made it explicitly clear that the stance provides policy rate guidance, without any direct guidance on liquidity management.

While both the Governor's approach reflected their reading of global risks, domestic inflation trends and India's growth path, India has and continues to remain a bright spot in terms of a strong monetary policy framework by RBI and stable macro-economic factors. We have respected the approaches of both the Governors and learnt to adapt our strategies accordingly.

Note: Views provided above are based on information in the public domain and subject to change. Investors are requested to consult their mutual fund distributor for any investment decisions.

Source: Bloomberg & HSBC MF Research estimates as on April 20, 2025 or as latest available

Disclaimer: This document has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as i) an offer or recommendation to buy or sell securities, commodities, currencies or other investments referred to herein; or ii) an offer to sell or a solicitation or an offer for purchase of any of the funds of HSBC Mutual Fund; or iii) an investment research or investment advice. It does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized. In no event shall HSBC Mutual Fund/HSBC Asset management (India) Private Limited and / or its affiliates or any of their directors, trustees, officers and employees be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein. This document is intended only for those who access it from within India and approved for distribution in Indian jurisdiction only. Distribution of this document to anyone (including investors, prospective investors or distributors) who are located outside India or foreign nationals residing in India, is strictly prohibited. Neither this document nor the units of HSBC Mutual Fund have been registered under Securities law/Regulations in any foreign jurisdiction. The distribution of this document in certain jurisdictions may be unlawful or restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. If any person chooses to access this document from a jurisdiction other than India, then such person do so at his/her own risk and HSBC and its group companies will not be liable for any breach of local law or regulation that such person commits as a result of doing so.

Investors are requested to note that as per SEBI (Mutual Funds) Regulations, 1996 and guidelines issued thereunder, HSBC AMC, its employees and/or empaneled distributors/agents are forbidden from guaranteeing/promising/assuring/predicting any returns or future performances of the schemes of HSBC Mutual Fund. Hence please do not rely upon any such statements/commitments. If you come across any such practices, please register a complaint via email at This email address is being protected from spambots. You need JavaScript enabled to view it..

Document intended for distribution in Indian jurisdiction only and not for outside India or to NRIs. HSBC MF will not be liable for any breach if accessed by anyone outside India. For more details, click here / refer website.

The above information is for illustrative purposes only. The sector(s)/stock(s)/issuer(s) mentioned in this document do not constitute any research report nor it should be considered as an investment research, investment recommendation or advice to any reader of this content to buy or sell any stocks / investments. The Fund/portfolio may or may not have any existing / future position in these sector(s)/stock(s)/issuer(s).

© Copyright. HSBC Asset Management (India) Private Limited 2025, ALL RIGHTS RESERVED.

HSBC Mutual Fund, 9-11th Floor, NESCO - IT Park Bldg. 3, Nesco Complex, Western Express Highway, Goregaon East, Mumbai 400063. Maharashtra.

GST - 27AABCH0007N1ZS | Website: www.assetmanagement.hsbc.co.in Mutual Fund investments are subject to market risks, read all scheme related documents carefully. CL 2657

Mr. Venugopal Manghat

Chief Investment Officer - Equity, HSBC Mutual Fund

Venugopal Manghat is the Chief Investment Officer (CIO) - Equity of HSBC Mutual Fund. Venugopal was previously Head - Equity Investments, L&T Investment Management Limited from May 2016 to Nov 2022 and was Co-Head - Equity Investments, L&T Investment Management Limited from Apr 2012 - Apr 2016. Prior to 2012, he was Co-Head - Equities, Tata Asset Management Limited, India from 1995 - 2012. His educational qualification is MBA Finance, B.SC (Mathematics).

Q1. March witnessed a sharp reversal from heavy selling to a recovery. Has the market truly stabilized, or are we experiencing a temporary lull?

Ans 1. Indian equity markets corrected 14% from October 2024 to February 2025 driven by slowdown in domestic economy and global concerns, resulting in lower earnings growth for FY25. Since March 2025, equity markets have posted 8% returns. The recovery has been driven by improving domestic economy conditions on the back of better liquidity conditions, lower inflation, bumper Rabi harvest, rate cuts by RBI and resumption of central government capex. However, the global economic scenario remains in a state of flux with concerns over slowing US economic growth, weakening dollar, rising treasury yields and tariff uncertainty. While we believe India is relatively better placed among global peers, there may be a possibility that the market may consolidate in a range for some time, until the global uncertainty settles down.

Q2. India has been positioning itself as a viable alternative to China for manufacturing and investment. Do you think Trump's tariffs could further accelerate this shift? Additionally, how might this impact investment in Indian equity markets, especially considering the recent market recovery?

Ans 2. India's global manufacturing share stands merely at 2.7% vs China's share of more than 30%. Globally, many countries and companies had started to reduce their dependence on China and diversify supply chains, especially post disruption during Covid.

While it is too early to comment on how Trump tariffs will impact China, we see countries looking to enter more bilateral deals and moving away from China. Consequently, India becomes a great alternative destination driven by favourable demographics, labour cost advantages, government initiatives such as Make in India, Production-Linked Incentives (PLI) and improving ease of doing business.

We see some companies in the electronics, capital goods, textiles, auto, etc. may being beneficiaries of this diversification. Foreign investors may also show more interest in Indian equity markets driven by this diversification benefit.

Q3. Which sectors do you believe offer the greatest growth potential over the next 3-5 years, and what makes them promising?

Ans 3. We see the following sectors most attractively placed over the medium-term:

Consumer Discretionary: As India's per capita income keeps increasing, we see consumption, especially, discretionary consumption to outperform the broader markets. The key drivers to this out-performance should be increased formalization, urbanization, digitization and convenience.

Financials: India has a fast-growing high net worth individual (HNI) and ultra-high net worth individual (UHNI) base driving investments outside the traditional asset class of bank deposits. The theme is clearly playing out with mutual funds garnering 20%+ growth over the past 10 years. Further, with resumption of RBI rate cuts, improving liquidity conditions and concerns on deposit growth abating, NBFCs and banks should also perform well.

Capital Goods: We are positive on the domestic manufacturing and Capital Goods sector may be a major beneficiary. The government has taken various initiatives such as PLI incentives, lowering corporate tax rates, GST and ease of doing business over the past years. These measures coupled with tailwinds in terms of China + 1 policy, favourable demographic and cost advantages in terms of labour, we see domestic manufacturing as a multi-year theme.

Infrastructure: The government has a keen focus on building the supply side of economy and remains committed towards investment in roads, railways, metros, ports, airports and defence. We see Power as a key multi-year theme with rising peak power deficits. We see considerable capex growth coming from the Power T&D segment and expect to see healthy order flows and activity from the sector.

Q4. Would you advise retail investors to diversify into global markets? What would be an ideal portfolio allocation?

Ans 4. We believe the fundamentals of the India long-term growth story continues to remain intact and the economy remains in an expansion phase. India has a strong domestic growth story, favourable demographics, government support for manufacturing and digital adoption. Over the next 5-10 years, India is likely to see steady growth in earnings and stock market performance.

Indian equity markets have been one of the best performing equity markets delivering mid-teens returns over the past decade or so. We see India's relative global attractiveness to remain intact over the coming years and advise long-term equity investors to remain firmly invested.

Q5. Recently, we've seen strong FII buying activity. The key question is, are FIIs making a lasting comeback? Can we expect this momentum to sustain moving forward?

Ans 5. FII ownership in Indian equity markets has been continuously trending down from a high of 25.3% in March 2015 to 20.4% in Dec 2024. On the other hand, DII share is at an all-time high of 16.9% in Dec 2024 led by higher ownership of mutual funds. Accordingly, FII/ DII ownership ratio is at multi-decadal lows in Dec 2024 (see chart below). With healthy domestic flows continuing, we expect FII influence to keep coming down.

The recent inflows by FIIs is a reflection of India's high underweight position in Emerging Markets (see chart below). India's weight relative to benchmark (MSCI Emerging Markets Index) is at multi-decade lows offering attractive risk-reward for FIIs. Further, India's external situation remains fairly strong with $680 bn+ foreign exchange reserves. While FII flows may remain volatile over the short-term driven by the global uncertainty, currently India offers the best relative attractiveness for FIIs from a long-term perspective.

India average weighting relative to MSCI benchmark and net OW/UW:

Q6. With the recent fall in Broader Indices, do you think valuations have begun to normalize? Which category (Large, Mid & Small) has become more lucrative post correction?

Ans 6. Post recent strong years of 7%+ GDP growth, we see GDP growth moderating to 6-7% in FY25/FY26. Further, the global volatile environment is creating high uncertainty. Accordingly, valuations have seen corrections across market caps.

Empirical evidence suggests that smaller companies have been found to do well in expanding economic cycles or when economic growth rates are rising, leading to higher earnings growth rates. Another advantage of small caps is that its universe is the largest and is continuously expanding with more stocks getting added, many in relatively newer and niche sectors. Since the economy is expected to compound in nominal terms at a fast pace over the next several years there will be opportunities for companies, especially the smaller ones to grow.

On a longer-term basis, therefore we continue to be of the view that smaller companies may generate better returns and alpha from the market. However, in periods of short-term uncertainty (similar to current one), large caps should outperform mid and small caps. Hence, we believe that an optimum mix of mid and small cap stocks in an equity portfolio is important for long-term wealth building in a growth-oriented economy like India.

Note: Views provided above are based on information in the public domain and subject to change. Investors are requested to consult their mutual fund distributor for any investment decisions.

Source: Bloomberg, MOSL & HSBC MF estimates as on April 20, 2025 end or as latest available.

Disclaimer: This document has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as i) an offer or recommendation to buy or sell securities, commodities, currencies or other investments referred to herein; or ii) an offer to sell or a solicitation or an offer for purchase of any of the funds of HSBC Mutual Fund; or iii) an investment research or investment advice. It does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred to herein and should understand that the views regarding future prospects may or may not be realized. In no event shall HSBC Mutual Fund/HSBC Asset management (India) Private Limited and / or its affiliates or any of their directors, trustees, officers and employees be liable for any direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein. This document is intended only for those who access it from within India and approved for distribution in Indian jurisdiction only. Distribution of this document to anyone (including investors, prospective investors or distributors) who are located outside India or foreign nationals residing in India, is strictly prohibited. Neither this document nor the units of HSBC Mutual Fund have been registered under Securities law/Regulations in any foreign jurisdiction. The distribution of this document in certain jurisdictions may be unlawful or restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. If any person chooses to access this document from a jurisdiction other than India, then such person does so at his/her own risk and HSBC and its group companies will not be liable for any breach of local law or regulation that such person commits as a result of doing so.

Investors are requested to note that as per SEBI (Mutual Funds) Regulations, 1996 and guidelines issued thereunder, HSBC AMC, its employees and/or empaneled distributors/agents are forbidden from guaranteeing/promising/assuring/predicting any returns or future performances of the schemes of HSBC Mutual Fund. Hence please do not rely upon any such statements/commitments. If you come across any such practices, please register a complaint via email at This email address is being protected from spambots. You need JavaScript enabled to view it..

The above information is for illustrative purposes only. The sector(s) mentioned in this document do not constitute any research report nor it should be considered as an investment research, investment recommendation or advice to any reader of this content to buy or sell any stocks / investments.

Document intended for distribution in Indian jurisdiction only and not for outside India or to NRIs. HSBC MF will not be liable for any breach if accessed by anyone outside India. For more details, click here / refer website.

© Copyright. HSBC Asset Management (India) Private Limited 2025, ALL RIGHTS RESERVED.

HSBC Mutual Fund, 9-11th Floor, NESCO - IT Park Bldg. 3, Nesco Complex, Western Express Highway, Goregaon East, Mumbai 400063. Maharashtra.

GST - 27AABCH0007N1ZS | Website: www.assetmanagement.hsbc.co.in

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. CL 2656

Mr. Vikas Garg

Head - Fixed Income India, Invesco Mutual Fund

Vikas heads the Fixed Income investment function at Invesco India and also serves as a fund manager for various duration-oriented debt schemes at Invesco India. He has over 19 years' of experience, of which 17 years' are in the asset management industry spanning across credit research and portfolio management. In his last assignment, Vikas was working with L&T Mutual Fund as a Portfolio Manager where he was responsible for managing the Debt funds in various categories, including the high yield-oriented funds. In the past, he has worked in the credit research team with companies like FIL Fund Management Pvt. Ltd. and ICRA Ltd. Vikas holds B. Tech & M. Tech in Chemical Engineering from IIT- Delhi, PGDBM from XLRI -Jamshedpur and has cleared CFA (USA) Level III.

Q1. Given that the Reserve Bank of India has initiated its rate cut cycle, do you foresee an additional reduction in lending rates during the upcoming April policy meeting?

Ans: MPC has kickstarted the rate cut cycle with 25 bps in Feb 2025, after almost 5 years. Since then, global as well domestic factors have turned more favorable for the 2nd consecutive rate cut in April policy. Globally, while the inflationary threat of US's tariff policy lingers, it has also raised concerns about US's economic growth. Recent moderation in US's CPI & jobs market reflected that, and even FOMC highlighted the same in its March policy when it delivered a dovish pause. Back home, Feb 2025 headline inflation has come at 3.61%, much better than expectations and with that, 4QFY25 average inflation may remain closer to 4% as against RBI's projections of 4.4%. The recent monthly trade deficit came in sharply lower, and for the first time, net monthly service exports exceeded the trade deficit. The INR has recovered well after almost touching 88 against the Dollar. RBI has initiated various liquidity measures like Open Market Purchase operations of G-Sec and Fx swap in order to provide durable liquidity. 3QFY25 GDP growth has recovered to an extent over the previous quarter but the risk factors remain high amidst global policy flux, posing challenge to RBI's projected GDP growth of 6.7% for FY26. With these factors, we expect RBI to turn its focus on growth support with another 25 bps rate cut in the forthcoming April 2025 policy. The new MPC's more flexible approach to inflation trajectory under the inflation targeting framework provides room for further rate cuts, however, it may also depend upon the global situation.

Q2. RBI recently announced a $21 billion liquidity infusion through open market operations and foreign exchange swaps. How do you foresee these measures influencing bond yields and the overall fixed-income market?"

Ans: There has been a marked change in RBI's forex and liquidity management approach since December 2024. Even as the banking liquidity has been in deficit for quite some time, RBI has been providing enough liquidity through VRRs thereby maintaining the overnight TREPs yield close to the policy repo rate. Additionally, RBI has been providing durable liquidity through OMOs and Fx swap. While all these measures have helped reduce the liquidity deficit, short end money market and corporate bond yields are still elevated. We expect the banking liquidity to turn adequately surplus over next 2 months with RBI's continued liquidity measures and RBI's dividend in May, thereby triggering a downward movement in short end yields. We expect RBI to use OMOs as a major liquidity tool to inject durable liquidity which will further sweeten the demand-supply dynamics for G-Sec, especially in the 5-15 yr segment.

Q3. How important is duration management in the current economic environment? What approaches do you recommend for aligning portfolio duration with investment objectives?

Ans: With the likelihood of further rate cuts by RBI and improving banking liquidity over the next few months, the overall risk-reward remains favorable at the current juncture. However, it is also important to position appropriately on the yield curve. The G-Sec yield curve is steep as of now, especially in the 5 – 15 yr segment, which we expect to flatten out on favorable demand-supply dynamics with fiscal consolidation, FPI buying and RBI's OMOs. The corporate bond yield curve on the other hand is inverted as short end yields remain elevated due to tight banking liquidity and huge supply. We expect the corporate bond yield curve to flatten out as well, but with short end 1- 5 yr yields coming lower more rapidly as the banking liquidity improves post May 2025. Any uptick in yields due to still evolving global factors should be seen as an opportunity to build further exposure. Active fund management is critical as uncertainties may emanate from domestic inflation and global backdrop, which may influence various yield curve segments differently.

Q4. What criteria should investors consider when evaluating the creditworthiness of fixed income securities?

Ans: While the high external rating (like AAA / AA category) of issuers of fixed income securities provides a good starting point, one should also independently analyze the creditworthiness of the issuer. Various parameters like promoter's background, high corporate governance, track record of successfully managing the business across the cycles, strength of balance sheet, steady cash flows, debt servicing capabilities, external rating history, among others, can be considered to take a more informed view. Healthy credit metrics of an issuer scores better than the security package of underlying fixed income instruments.

Q5. How do you assess the influence of global economic trends, such as inflationary pressures and geopolitical events, on India's bond market?

Ans: Global market remains on edge as the US has started taking tariff policy measures against few countries. Such measures are expected against more countries, including India, thereby keeping the tensions high. Geo-political tensions have also flared up. The response function of countries may vary, adding to the overall volatility in financial & currency markets. US's further rate cut expectations are changing rapidly as incoming data suggests a healthy economy but at the same time policy disruptions may increase the risks to growth.

Against the global uncertainty, the Indian fixed income market is expected to remain largely resilient, though it may face knee-jerk reactions. The Central Government's clearly articulated fiscal consolidation path over the next few years remains a structural driver for the domestic fixed income market. Foreign investors continue to invest in the domestic fixed income market for the 4^th consecutive month with inclusion in global debt indices, even as the equity segment has seen huge outflows. The INR has proved to be relatively better across EMs, amidst currency volatility on the back of strong fundamental drivers and manageable current account deficit. Domestic inflation is showing healthy signs of moderation. Given these factors, we expect the domestic bonds market to remain largely insulated from global spillovers and react more to the domestic factors.

Q6. What is your outlook for the fixed-income market in the coming quarters, and what investment strategies do you recommend for investors seeking stable returns?

Ans: We maintain a constructive view on the domestic fixed income market on the back of favorable demand-supply dynamics for G-Secs, expected rate cuts and improving banking liquidity. Current elevated yields across the curve provide an attractive entry point. For investors looking to keep the volatility low, debt fund categories like Money Market, Ultra Short Duration and Low Duration provide healthy accruals and are expected to benefit from rate cuts & improving liquidity. Permitting the risk appetite, one may look to add duration through funds like Short Duration Fund, Corporate Bond Fund and Medium Duration Fund which can provide balanced participation in G-Sec in the 5-15 yr space and corporate bonds in 1-5 yr space. These categories will help in capturing capital gains as the yields decline.

Mr. Taher Badshah

Chief Investment Officer - Equity Invesco Mutual Fund

Taher has over 30 years of experience in the Indian equity markets. In his role as Chief Investment Officer, Taher is responsible for the equity and fixed income investment function at the firm. He has been with Invesco Asset Management, India for over 7 years. In his previous role with Motilal Oswal Asset Management as Head of Equities, he was responsible for leading the equity investment team. In the past, he has also worked with companies like Kotak Mahindra Investment Advisors, ICICI Prudential Asset Management, Alliance Capital Asset Management, etc. Taher holds a Master’s in management studies (MMS), with specialization in finance from S.P. Jain Institute of Management and a B.E. degree in Electronics from the University of Mumbai.

Q1. The year 2025 is presenting significant challenges, particularly for retail investors holding small-cap stocks. With the correction in high PE stocks, do you anticipate further market downturn or a gradual recovery as we step into FY26?

Ans: We believe the correction in the broad market and particularly in the SMID space since the start of the year has by and large run its course. Bulk of the damage is behind us. Domestic slowdown and Global uncertainty have been the key causes of the market decline. We think many of the measures taken by RBI and the Govt in the past 3 months, the start of the rate cut cycle and the support to consumption through the Budget will have their effects in the coming months to Improve growth trends. Globally, we reckon the tariff measures by the US will be in place over the next 2-3 months. We also expect the US economy to slow this year and thereby foreign investor flows to start moving from developed to emerging markets. Meanwhile, India's valuations, especially in the smallcap segment have corrected 20pc during this fall making the segment quite attractive once again for investors with a 2-3 year horizon.

Q2. Many stocks are currently trading at a 20-50% discount from their previous highs. What key criteria should investors consider when selecting stocks in this environment?

Ans: At a stock level, investors should move up the quality curve but at the same time ensure those companies are able to grow ahead of the system rate of growth (nominal GDP). Companies with credible competitive advantages and strong execution in the recent past should be preferred.

Q3. With factors like Trump's policies, trade wars, tariffs, dollar fluctuations, and a shaky US equity market-alongside Nifty hitting an eight-month low-how should Indian investors adjust their mindset and investment strategy in response?

Ans: Over time various factors will confront markets and investors in their journey. It is important to keep a longer-term view and return expectations modest. One will not find answers to all issues at the same time. It is important to be able to judge what market has already priced in. Due to prevailing uncertainties, India's valuations have lost much of their premium to world markets which provides an attractive entry point for smart investors who look to compound earnings over the long term in our view. Uncertainty provides opportunity.

Q4. If an investor approaches you with a medium risk appetite, and a significant cash reserve looking to invest exclusively in mutual funds, how would you construct a suitable mutual fund portfolio in this current market?

Ans: For investors with a medium risk appetite, I would recommend a combination of a flexicap and small cap fund (75%) at this stage of the market cycle. I would also look to do the remaining 25pc allocation to at best 1-2 thematic funds and a multi asset fund.

Q5. Do you anticipate an earnings recovery in Calendar Year 2025?

Ans: We think India's earnings downgrade cycle is largely done and with the measures undertaken by the central bank and the government, we expect the earnings cycle to strengthen in the coming quarters and alongside a steady back ended recovery in the markets starting second half of calendar 2025.

Mr. Sailesh Raj Bhan

CIO - Equity Investment, Nippon India Mutual Fund

Sailesh Raj Bhan is CIO - Equity Investments at Nippon India Mutual Fund. He has over 27 years of experience in Indian Equity Markets with over 19years at Nippon Life India Asset Management Limited. An MBA in Finance and CFA by qualification, he has been managing multiple flagship funds namely, Nippon India Large Cap Fund, Nippon India Multi Cap Fund & Nippon India Pharma Fund for over 15 years.

Q1. What are your thoughts on the overall budget and its impact on the equity markets, the economy, and other key areas?

Fiscally prudent balanced budget with its 3-pronged strategy 1) supporting consumption through tax cuts 2) maintaining capex thrust & creating better environment for bigger role private sector and 3) fiscal prudence. More disposable income is likely to lead to higher spending, better consumer - business confidence and eventually private capex recovery backed by credit growth revival. We expect the budget will be viewed positively by markets and domestic flows will be supportive.

Q2. When discussing the Budget, it's clear that several incentives have been introduced for the middle class to drive consumption. However, the capital market's expectations were not fully addressed. What are your thoughts on this?

Consumption slowdown was a key area which was sought to be addressed by the budget, however the Capex push was maintained despite the constraints of fiscal prudence. Total capex spend is projected to grow at 10% YoY against 8% in FY25. Including extra budgetary resources (IEBR), total capex spend is likely to grow 11% against 7% in FY25. Within total capex, the growth in roads and railways capex (including IEBR) is flat (0%) in FY26 ( 5-7% YoY in FY25 while defense capex is projected to grow 13% YoY in FY26 versus 4% in FY25. Apart from these measures ease of doing businesses has been the key theme of the Budget, which can help in improving Private Sector capex.

Q3. Have there been any changes in FIIs' concerns or their positioning following the Budget?

The prevailing global macroeconomic conditions along domestic factors may weigh on the sentiment of foreign investors in the short run. This along with the currency volatility based on policy shifts in the US is another parameter which will influence the flows. While the India equity valuations have moderated with large caps closer to long term averages and broader premiums have come off from the highs, it is anticipated the FIIs may remain cautious in the near term till better visibility emerges from a macro perspective.

Q4. What are the most and least promising sectors after the Budget?

Large financials, consumer discretionary segment along with structural themes like urbanization, premiumization and localization of manufacturing appear well placed in the current context

Q5. Given the recent market volatility, what are your predictions for future SIP trends? Have you observed any recent changes in SIP inflows or a shift in allocation patterns?

SIPs are great form of long-term wealth building. Given the extent of investor awareness through various educational initiatives, it is unlikely that SIP flows may witness large scale stoppages. Although, there have not been any significant changes in allocation pattern, it is likely that large cap and large cap-oriented categories like Flexi/Multi/Large Mid Cap etc. may witness higher investor preference on higher than usual volatility.

Q6. Suppose someone with a three-year investment horizon, particularly Gen Z investors who entered the market post-COVID, is now facing a 20-30% drawdown in their mutual fund. They might be questioning their decision, thinking, "What should we do?" How should they navigate this situation?

Asset allocation in line with an investor’s need is very important and in case there is deviation in the same due to market swings, its essential that the same is rebalanced in line with financial needs. Accordingly portfolio can be realigned and investors with shorter time horizon and less risk appetite can consider hybrid strategies like Balanced Advantage or Multi asset allocation funds or even consider adding some debt allocations.

Alternatively if the investor can extend the investment horizon and has appropriate risk appetite they can continue with their investments. Historically it has been observed that sharp decline in equity markets offer great opportunity to accumulate more units (at lower prices) like 2000, 2008, 2013, 2020 wherein the returns post the correction phase can be meaningful.

Mr. Amit Tripathi

CIO - Fixed Income, Nippon India Mutual Fund

Amit has 27 years of experience in Capital Markets. He has been with NIMF for more than 20 years. He has successfully managed fixed income and hybrid funds for the past two decades. Many of these funds have been recognized for superior performance both nationally and internationally. In his current role as CIO- Fixed Income, he leads a team of 22 highly motivated and experienced fixed income professionals.

Q1. Following the policy announcement, why did the bond markets initially react with disappointment, despite yields rising a few basis points?

Bonds markets reacted with disappointment post first rate cut as the move was already priced in by the market. Absence of any specific announcement with respect to liquidity measures even as the RBI guided to ensure sufficient system liquidity coupled with absence of change in stance led to spike in bond yields.

Q2. With two major events-the Union Budget and the highly anticipated rate cut-now behind us, what are your expectations for yields?

Given the good performance of long-term bond yields over the last 12-18 months risk-return trade off appears in favour of short end of the curve i.e 1-5 year. Liquidity easing measures by the RBI may lead to steepening of the yield curve, leading to lower yields at short end of the curve across assets. While a conduct of OMO purchase by the RBI is positive for 10-year benchmark GOI bond. Any incremental deterioration in growth and further rate cuts by the RBI and fall in US bond yields may be positive for long duration.

Q3. How are your debt funds positioned in terms of duration? Have the recent policy updates led to any adjustments?

We have made no changes in the duration and are on the higher side of the duration in the intermediate duration fund category to benefit from the potential rate cuts and liquidity easing measures.

Q4. What according to you were the key takeaways from the governor's speech?

• Given the current growth-inflation dynamics, the MPC felt that a less restrictive monetary policy is more appropriate at the current juncture.

• MPC to use the flexibility embedded in the inflation targeting framework while responding to the evolving growth-inflation dynamics.

• To proactively take appropriate measures to ensure orderly liquidity conditions.

Q5. What advice would you give investors on positioning their fixed-income portfolios considering the budget announcements and the RBI rate cut?

Given a marginal term spread, between 5 and 10-year GOI bonds at around 4 bps, with the 5 year GOI bond currently hovering around 6.65% and the 10-year GOI bond at around 6.69% we expect term spread to widen. Further, the yield of the AAA rated 3- and 5-year corporate bonds currently stands at around 7.30% and 7.26%, respectively, as compared to the 6.63% and 6.65% yield of the GOI bonds of the same tenure. Thus, offering an opportunity of spread compression of corporate bonds over GOI bonds. Further liquidity infusion may soften the yields at short end of the curve.

Accordingly in line with the current market dynamics around 70%-75% of the allocation may be considered at intermediate duration (which invests in 3-5 yr corporate bonds and 5-10 yr g-secs), such as short term funds, corporate bond fund, low duration fund, Banking & PSU debt Fund. and remaining 25%-30% at the long end of the curve.

Mr. Nimesh Chandan

Chief Investment Officer - Equity

Bajaj Finserv

Nimesh Chandan is an Investment Professional with 22 years of experience in investing in the Indian capital markets. He has an established track record in managing money and advising clients, both Domestic and International, Retail as well as Institutional.

Over the years, he has developed an investment process that generates alpha through informational, analytical as well as behavioural edge. He has been part of the mutual fund industry for 18 years where has managed products across market capitalisation and themes, and developed models on Sustainable Investing, Quant Investing and Asset Allocation..

Nimesh is a keen follower of Behavioural Finance and has been writing and presenting on the role of psychology in Investment Decision-making to the investment community. He has developed a set of processes and tools that help reduce one’s behavioural mistakes and understand the crowd or market behaviour.

Q1. As we begin 2025, how do you expect the year to unfold in comparison to 2024?

As we begin 2025, it's important to acknowledge the uncertainty inherent in predicting market outcomes at this stage. Event risks, including geopolitical developments and global economic shifts, remain key factors that could influence market performance. Domestically, the Union Budget will be a significant event, with potential measures to drive growth, investment, and consumption. However, it's too early to gauge the full impact until we see the details of these announcements.

The policy rate outlook will also play a pivotal role, with both the Reserve Bank of India (RBI) and global central banks navigating a balancing act between inflation control and economic growth. For now, views on how 2025 will compare to 2024 remain fluid and will solidify further after critical economic data is released in March, including corporate earnings and macroeconomic indicators. As always, our focus remains on navigating these uncertainties while identifying opportunities to deliver consistent, long-term value for our investors.

Q2. In this new year, one major event to watch for is the budget. What do you anticipate will be the key focus areas for the government this time?

The Union Budget this year is likely to focus on driving economic growth while maintaining fiscal discipline. The government may announce measures to boost rural development, agriculture, and infrastructure to support inclusive growth and job creation. Investments in sectors like renewable energy, manufacturing, and affordable housing could be prioritized to align with long-term economic goals. Additionally, tax reforms and incentives for individuals and businesses may aim to stimulate consumption and investment.

Another key area could be measures to encourage private sector participation and ease of doing business, particularly through PLI (Production Linked Incentive) schemes and MSME support. Continued emphasis on digital transformation, healthcare, and education is also expected, given their critical role in sustaining India's growth momentum. We will be closely analyzing these announcements for their potential impact on market sectors and corporate earnings to align our portfolios with emerging opportunities.

Q3. With the recent market correction in both BSE and Nifty, is this an opportunity for investors to enter the market or increase their existing positions?

The recent market correction in both BSE and Nifty can offer a good opportunity for investors, but the approach should be tailored to their risk-taking capacity and investment goals.

1. Low-Risk Investors: For conservative investors, market corrections can present opportunities to add positions in large-cap, stable companies with strong fundamentals and consistent earnings. These stocks tend to be less volatile and provide steady returns over time. Our large-cap fund with a focused strategy could be a suitable option here.

2. Moderate-Risk Investors: For investors with a moderate risk appetite, this market correction may offer opportunities to invest in a mix of large-cap and mid-cap stocks, which have growth potential but come with slightly higher volatility. Our large and mid cap fund with moat investing strategy and which invests a minimum of 35% in each of large and mid cap stocks, could help capture upside while managing risk.

3. High-Risk Investors: For those willing to take on more risk, market corrections can present attractive entry points into sectoral and thematic funds. We have 2 offerings in the sectoral and thematic space - consumption and healthcare fund, which could be suitable for high risk investors.

Key Factors to consider:

• Market Volatility: While corrections offer opportunities, markets can remain volatile in the short term. It's important to maintain a long-term perspective to avoid making decisions based on short-term market movements.

• Risk Diversification: It's essential to not concentrate investments in just one or two sectors. Diversified equity funds offer a balanced approach to manage risks while participating in market growth.

• Fundamental Analysis: Ensure that investments are being made in fundamentally strong stocks or sectors with robust growth potential, rather than being swayed solely by market price movements during the correction.

This market correction presents a good entry point for investors based on their risk profiles, and mutual funds offer an efficient way to diversify across sectors and market caps, aligning with both conservative and growth-oriented strategies.

Q4. Is the popularity of index and factor-based passive funds a passing trend, or do they represent a sustainable and enduring investment approach?

The popularity of index and factor-based passive funds is not a passing trend but rather represents a sustainable and enduring investment approach. The rationale behind this assertion can be framed within the following key points:

• Cost Efficiency
  Passive funds, whether index-based or factor-based, offer significantly lower expense ratios compared to actively managed funds. With the growing awareness of costs impacting long-term returns, investors gravitate toward these cost-efficient solutions, especially in efficient markets where alpha generation is challenging.

• Empirical Evidence on Factor Premiums
  Factor-based funds tap into well-documented sources of return, such as value, momentum, quality, size, and low volatility. These factors have been empirically proven to deliver risk-adjusted outperformance over the long term, aligning with evidence-based investment approaches.

• Diversification Benefits
  Index funds offer diversification across various sectors, commodities and styles, while factor funds allow targeted exposure to specific risk premiums, enhancing portfolio construction flexibility and resilience against individual stock or sector-specific risks.

The growing popularity of passive funds in India is driven by their structural advantages, including transparency, cost-effectiveness, and alignment with evolving investor preferences. These factors position them as an increasingly integral part of modern portfolio management in the country.

Q5. Which sectors are you currently underweight on and which ones are you bullish about for 2025, and what's driving your stance?

We are currently bullish in the Consumption, Healthcare and IT sectors.

Consumption: We are bullish on the consumption sector due to India’s strong domestic demand and demographic advantages. Rising disposable incomes, urbanization, and a growing middle class are driving robust demand for consumer goods and services. Additionally, government initiatives such as rural development programs, increased infrastructure spending, and welfare schemes are boosting rural consumption. Companies in this sector also benefit from improving supply chain efficiencies and innovations in e-commerce, further enhancing profitability and growth potential.

Healthcare: India's healthcare sector presents a compelling investment opportunity due to structural tailwinds such as rising health awareness, increasing healthcare spending, and an aging population. The sector benefits from both domestic and global demand for pharmaceutical products, medical devices, and healthcare services. Government policies like Ayushman Bharat and incentives for pharmaceutical manufacturing bolster the sector's prospects. Additionally, India's established position as a global pharmaceutical hub, supported by cost-efficient production and strong R&D capabilities, provides further upside for long-term growth.

IT: The IT sector remains a cornerstone of India’s economy, driven by its dominant position in global IT services and digital transformation trends. The sector benefits from a growing demand for cloud computing, AI, cybersecurity, and data analytics. Strong client spending in key geographies like the US and Europe supports revenue growth. Moreover, the sector is positioned to capitalize on emerging opportunities in platform-based solutions and digital engineering. The favourable currency movement and India’s cost advantage in talent acquisition also contribute to the sector's sustained profitability and growth.

Currently, we are underweight in the Utility, Metal and Financial Services sectors.

Q6. The New Year marks a time for fresh starts, and if someone were to begin anew with a capital of Rs 10 lakh, how would you recommend they proceed, particularly if they have a moderate risk appetite? What would be an ideal asset allocation strategy in this case?

For someone with a moderate risk appetite and a capital of ₹10 lakh, the focus should be on achieving a balance between growth and stability while aligning the investment strategy with their long-term goals, time horizon, and liquidity needs.

An ideal asset allocation for moderate risk would typically involve diversification across equity, debt, and other asset classes. Equity investments can provide growth potential, while fixed-income instruments offer stability and consistent returns. Depending on the individual's financial objectives, a portion could also be allocated to alternative assets like gold for added diversification and inflation hedging. Periodic reviews of the portfolio are crucial to ensure that it remains aligned with market conditions and personal goals, making this strategy adaptable and future-ready.

Mr. Nimesh Chandan

Chief Investment Officer - Fixed Income India

Bajaj Finserv

Nimesh Chandan is an Investment Professional with 22 years of experience in investing in the Indian capital markets. He has an established track record in managing money and advising clients, both Domestic and International, Retail as well as Institutional.

Over the years, he has developed an investment process that generates alpha through informational, analytical as well as behavioural edge. He has been part of the mutual fund industry for 18 years where has managed products across market capitalisation and themes, and developed models on Sustainable Investing, Quant Investing and Asset Allocation..

Nimesh is a keen follower of Behavioural Finance and has been writing and presenting on the role of psychology in Investment Decision-making to the investment community. He has developed a set of processes and tools that help reduce one’s behavioural mistakes and understand the crowd or market behaviour.

Q1. A major event in the US is the potential return of Trump with "Trump 2.0." How do you think this could influence US monetary policy, and what impact might it have on interest rates globally?

The potential return of Trump with "Trump 2.0" could bring significant policy shifts, impacting global markets and monetary policy indirectly. His administration's platform of improving government efficiency and reducing budgetary expenditure could influence fiscal policy, possibly curbing certain government programs to manage deficits. However, pro-business policies, including deregulation and tax incentives, might stimulate economic growth, potentially leading to inflationary pressures that the US Federal Reserve would need to monitor closely.

Key uncertainties, such as tariffs, visa policies, and inflation, add layers of complexity. Trade restrictions or tariff uncertainty could disrupt global supply chains, increasing costs and fueling inflation, while visa policy changes might impact labor markets and productivity. These factors could lead the Federal Reserve to adopt a cautious stance, balancing growth support with inflation control. For now, a "wait and watch" approach is prudent as the situation evolves, keeping a close eye on data and developments that could shape interest rates globally.

Q2. In 2024, the US Federal Reserve reduced interest rates by 100 basis points, yet the US 10-year bond yields have risen by about 70-80 basis points. Meanwhile, despite the Reserve Bank of India not cutting rates, the 10-year G-Sec yield posted its steepest decline in four years in 2024. The yield ended at 6.7597%, dropping 42 basis points on-year after easing 15 bps in 2023. How do you interpret these developments in the context of both economies?

Some of the reasons for rising US 10 year bond yields are:

• Economists initially projected 1.2% growth for 2024, but this estimate more than doubled to 2.7% by year-end. Stronger-than-expected growth reduced the likelihood of further Federal Reserve rate cuts, pushing yields higher.

• Economic uncertainty continues to drive yields upward, with lingering questions about the Fed's future rate path and the potential inflationary impact of new administration policies.

• If markets anticipate higher future inflation, long-term bond yields may rise, regardless of rate cuts.

Some of the factors attributing to falling 10 year G-Sec yields are:

1. Easing Inflation: India's retail inflation moderated significantly in 2024, reducing pressure on yields.

2. Global Impact: Falling US Treasury yields earlier in the year and expectations of global monetary easing improved risk sentiment, benefiting Indian bonds.

3. Foreign Inflows: Improved global liquidity conditions likely attracted Foreign Portfolio Investors (FPIs) to Indian debt markets, strengthening demand for G-Secs.

4. Supply Management by RBI: Proactive Open Market Operations (OMOs) and bond-buying programs by the RBI ensured smooth absorption of government borrowing, keeping yields under control.

Q3. What are the key risks that fixed income investors should be mindful of?

1. Interest Rate Risk: When interest rates rise, the price of existing bonds tends to fall, leading to potential capital losses. This is a key risk for investors holding longer-duration bonds. Short-duration bond funds or those focused on floating-rate securities can help mitigate this risk.

2. Credit Risk: This refers to the risk that the issuer of the bond may default on its interest payments or principal repayment. For investors in corporate bonds or lower-rated bonds, it's essential to assess the creditworthiness of the issuer. Opting for funds focused on high-quality, investment-grade bonds can reduce exposure to credit risk.

3. Inflation Risk: Inflation erodes the purchasing power of fixed income returns. If inflation rises significantly, the real return on fixed income securities may turn negative. Investors looking for protection against inflation may consider inflation-linked bonds or funds with exposure to sectors that tend to perform well in inflationary environments, such as government securities or short-duration bonds.

4. Liquidity Risk: Some fixed income securities, particularly those in less liquid markets, can be difficult to sell quickly without a loss in value. This risk is more relevant for investors in lower-rated or illiquid bonds. Funds that focus on more liquid, high-quality bonds can help mitigate this risk.

5. Reinvestment Risk: This arises when interest or principal payments from bonds need to be reinvested, but prevailing interest rates are lower than when the original investment was made. Investors can mitigate this by opting for laddered bond strategies or funds that actively manage reinvestment opportunities.

Q4. What investment strategies would you recommend for investors at both the short end and long end of the curve in 2025?

Investment strategies for 2025 should consider the prevailing macroeconomic environment, interest rate trends, and individual investor objectives. At the short end of the curve, the focus is typically on managing liquidity and capital preservation. Investors may look to take advantage of opportunities that offer stable returns with lower interest rate sensitivity, keeping duration relatively short to mitigate volatility risks. This approach is particularly suited for those with a shorter investment horizon or those seeking to park funds temporarily.

For the long end of the curve, strategies would likely depend on the trajectory of interest rates and inflation expectations. A stable or declining rate environment could provide opportunities to lock in higher yields for the long term, benefiting from potential price appreciation. However, long-duration investments carry higher interest rate risks and may be better suited for investors with a longer horizon and a greater tolerance for volatility. Across both ends, diversification and alignment with individual financial goals remain key to navigating market uncertainties effectively.

Q5. With the RBI raising its inflation projection and lowering its GDP growth forecast for the current fiscal year, what is your outlook on economic growth? Do you believe it can pick up in the second half of this fiscal year?

The RBI's decision to raise its inflation projection and lower its GDP growth forecast reflects the challenges posed by persistent inflationary pressures and global uncertainties. These adjustments suggest a cautious economic environment where growth might face headwinds in the near term due to higher costs, subdued external demand, and tighter monetary conditions.

That said, economic growth in the second half of the fiscal year could pick up, supported by factors like a good festive season, strong government spending, and resilient domestic demand. Additionally, easing inflationary pressures, if achieved, could improve consumer and business sentiment, fostering a recovery in key sectors. However, much will depend on external factors like global growth trends, geopolitical developments, and commodity price movements. A balanced and measured approach remains crucial for navigating these evolving conditions.

Mr. Rahul Goswami

Chief Investment Officer & Managing Director - Fixed Income India

Franklin Templeton Asset Management (India) Pvt. Ltd.

Rahul Goswami is Chief Investment Officer (CIO) and Managing Director at Franklin Templeton, Fixed Income in India. In this role, Rahul oversees the fixed income functions of the locally managed and distributed debt schemes of Franklin Templeton Mutual Fund. Rahul was previously the CIO - Fixed Income at ICICI Prudential Asset Management (I-Pru) and a key contributor to the success of I-Pru’s fixed income funds in India. Prior to I-Pru, he was a member of the Franklin Templeton India Fixed Income team, serving as portfolio manager from 2002 to 2004. Rahul also brings a wealth of experience from his time at well-regarded banks such as Standard Chartered Bank and UTI Bank. He has over 25 years’ experience in managing fixed income funds.

Rahul earned his M.B.A. and his bachelor’s degree in science from Bhopal University.

Q1. RBI announced a 50-basis-point reduction in the Cash Reserve Ratio (CRR). How do you assess the impact of this move, especially in the context of rising global geopolitical tensions and inflationary pressures?

The CRR reduction to 4.00% in two tranches of 25 bps each is a move towards restoring the ratio to pre-April 2022 levels. The move is aimed at releasing approximately ₹1.16 lakh crore of primary liquidity into the banking system. RBI in its latest policy meeting suggested that the systemic liquidity is expected to tighten due to tax outflows, increase in currency in circulation and volatility in capital flows. This reduction is to enable banks to continue credit to businesses and consumers, leading to increased investment and consumption. Domestically, inflation has remained mostly within the RBI tolerance band and the volatility exhibited by the headline inflation is due to intermittent spike in vegetable and food prices and to an extent due to unfavorable base effects. Thus, we believe that the additional supply of money is not expected to be inflationary but only to compensate for the reduced liquidity.

Q2. With the RBI maintaining the status quo on policy rates in this month’s MPC meeting, what is your outlook for the next monetary policy review? Is a rate cut on the cards in February? If so, what could be the magnitude of the cut?

Policy moves by the RBI are determined by growth-inflation dynamics and macro stability. While the latest growth outlook for full year FY25 was tempered by 60 bps to 6.6%^ (Source: RBI Monetary Policy Committee dated 6^th Dec 2024), it was largely a result of lower-than-expected GDP growth in the Q2FY25. Average real GDP growth, as per RBI projection, for the next four quarters i.e Q3FY25, Q4FY25, Q1FY26 and Q2FY26 are expected to be above 7%. At this juncture, it wants to remain prudent and practical and does not want the intermittent spike in headline inflation due to food prices volatility to spillover into other components of the inflation basket. It is difficult to predict the exact timing of rates cuts by the RBI, but we assess rate cuts in India to be shallow with two or three cuts of 25 bps each in CY 2025.

Q3. Will US 10-year bond yields cross 5% again? If yes, what would be its impact on emerging markets like India?

Looking at probable fiscal situation and growth-inflation dynamics in US, the neutral level for 10yr bond yield is in the range of 4.50-5.0%. This increase in US bond yields may pose challenges for emerging markets, as their bond yields must offer a suitably attractive rate of return. To make investing in these markets reasonable, one must consider hedging costs and ensure a return that surpasses the 4.5-5.0% yield of US bonds.

Q4. The RBI's downward revision of the GDP forecast to 6.6% from 7.2% raises concerns about the pace of economic recovery. Do you believe the Indian economy is on track to achieve its potential, considering current economic indicators?

RBI assesses the domestic activity to bottomed out in Q2:2024-25. In our assessment India's real GDP growth in Q2 at 5.4% is an aberration. The low GDP number is due to slowdown in industrial growth, particularly in manufacturing, mining, and electricity. However, high-frequency indicators suggest recovery, driven by strong festive demand and improved rural activities. Agricultural growth is supported by a healthy kharif crop and better rabi sowing. The services sector continues to expand robustly. Real GDP growth for 2024-25 is projected at 6.6%^, with Q3 at 6.8% and Q4 at 7.2%, indicating a resilient outlook. The next year’s quarterly growth outlook is estimated at 6.9% in Q1FY26 and 7.3% in Q2FY26. Overall, we feel that the growth might bounce back from the lows of Q2FY25 due to increased government spending and aided by strong high frequency indicators.

Q5. In light of a strong dollar and its global repercussions, how do you see currency movements affecting Indian investments?

RBI has been aware of the repercussions of a strong dollar and has been proactive to intervene from time to time. Financial markets have remained edgy amidst the rising US dollar and hardening bond yields, resulting in large capital outflows from emerging markets. Going forward, the outlook is clouded by rising tendencies of protectionism which have the potential to undermine global growth and push inflation higher. India, like other emerging markets is also likely to see volatility in asset prices.

Q6. We are in the last month of the year 2024 – any key learnings you would like to share?

We began the year with continued geopolitical risk amidst two ongoing wars. Then, developed economies started lowering rates, beginning with the European Central Bank, followed by the Bank of England. In September, the US Fed delivered a higher-than-expected cut of 50 bps, followed by two more cuts of 25 bps each (Source: US Federal Reserve Monetary Policy Documents dated 18^th Sept, 7^th Nov, 18^th Dec 2024), cumulatively bringing down the rates by a full percentage point. Additionally, a Republican sweep in the US elections may lead to tariff changes and tax cuts, potentially causing disruptions and inflation. These factors have effectively added an element of uncertainty to the financial markets. We believe that the volatility we have seen in 2024 might continue for some more time, and therefore, we need to remain prudent and agile in our actions to rebalance our investment portfolio from time to time.

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