Mumbai, Aug 4 Sandeep Bagla, Chief Executive Officer, Trust Mutual Fund, said given the steepness in the curve, moderate rate hikes should not reduce the investor returns if one holds for more than three months.
Our strategy would be to invest in six months papers and hold them to maturity, he adds.
Q. Recently you have launched money market fund, will you please provide some details? And how do you think this fund will provide reasonable returns to investors?
A: We have recently launched the TRUSTMF Money Market Fund and will be investing the proceeds after the RBI policy. While a money market fund can invest in securities with maturity up to 1 year, our strategy is to invest in 6 months instruments only. The difference in yields between 6 months papers and overnight rates is exceptionally high at about 130 bps, and we feel that these are good rates for investors to lock in. Given the steepness in the curve, moderate rate hikes should not reduce the investor returns if one holds for more than 3 months. Our strategy would be to invest in 6 months papers and hold them to maturity.
Q. How much repo rate hike do you expect in the upcoming policy and what will be the stance and GDP, Inflation forecast?
A: We expect 35-50 bps hike in repo rates and stance to move to neutral, with an eye towards supporting growth and another towards controlling inflation. The US Fed has moved clearly towards inflation control, with little regards towards growth.
Q. Rupee has appreciated in past few sessions, except on August 3, what are your views on the local currency? Will it appreciate further or continue downward path?
A: The Rupee is expected to depreciate against the Dollar every year by 3-4 per cent given the long term inflation differential expectations. We, at TRUST MF, feel that Rupee will move in a range unless the Dollar decided to embark upon a one sided journey globally. The Rupee is not a very important factor for interest rates in the medium term.
Q. In the last few days, we have seen a bull run in the domestic equity market, do you think it will sustain or we will see a pause and downfall?
A: Since the Indian market has moved along with the global risk sentiment, it is difficult to ascertain whether there are any India specific factors which are leading the rally. The true test of the markets would come once there is substantial reduction in global liquidity due to Quantitative Tightening by the US Fed, which will reduce its bloated balance sheet of USD 9 trillion dollars.
Q. What will be your portfolio strategy in the current market scenario, either in equity or debt?
A: Since we have only fixed income funds, we have restricted ourselves to investment in instruments with maturities lesser than 3 years. While rates have been normalised, it is possible that the levels are inadequately low to control inflation and inflation expectations, which have been buoyed by higher commodity prices, supply shocks and unprecedented wage pressures.
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