India’s JM Financial MF targets short-term corporate debt as rate cuts wind down

MUMBAI: India’s JM Financial Asset Management is moving into shorter maturity corporate bonds as most of the interest rate cutting cycle is done, a senior fund manager at the firm said on Monday.

The Reserve Bank of India’s monetary policy decision is due on Friday, on the heels of stronger-than-expected economic growth data for the July-September quarter which has raised doubts around whether the central bank will deliver one more interest rate cut.

“We are significantly towards the end of the easing cycle,” said Killol Pandya, head of fixed income at the mutual fund told the Reuters Trading India forum.

“In the context of ample liquidity, robust growth and rising but manageable inflation, we favour the shorter end of the curve as compared to the longer end from a risk-reward perspective.”

The fund house manages around 150 billion rupees ($1.67 billion) in assets.

“Given the volatility and uncertainty surrounding global and domestic macro economic factors, it may be possible for RBI to consider further easing at a point in time farther than this Friday,” he said.

The RBI slashed its benchmark policy interest rate by 100 basis points through June this year, but has maintained status quo since then.

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Even if the RBI goes for a rate cut, economists say it could be the last in the current easing cycle.

“Typically, the manner of managing a mature easing cycle is to gradually shift from duration plays to accrual plays,” where fixed income investors make a return from buying and holding securities to earn yield rather than banking on asset price appreciation of the bonds in their portfolio resulting from rate cuts.

In this context, JM Financial is preferring to invest more in corporate bonds, Pandya said.

The fund manager further said currently three-five year AAA-rated corporate bonds are available at a spread of 65-75 basis points over government bond yields and he expects the spreads to remain broadly rangebound with a bias towards “bullish compression.”