Global yields and central banks will continue to weigh on RBI, especially since our macro parameters are somewhere in the middle and do not merit immediate action.
Sandeep Yadav, Head - Fixed Income, DSP Mutual Fund
Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India)
Piyush Baranwal, Sr. Fund Manager (Fixed Income), WhiteOak Capital Asset Management
FinTech BizNews Service
Mumbai, 9 October, 2024: RBI maintained the Repo rate at same levels and changed the stance to Neutral, which was largely in line with consensus. Here are views of leading voices from MFs, brokerage houses & wealth management on MPC decisions:
Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers:
“RBI MPC changes policy stance to neutral... Maidaan opens up for a rate easing ritual...
With status quo on rates, the RBI MPC unanimously voted for a policy stance change to neutral. Clearly a pivot towards potential rate easing action in the months ahead. The RBI has tried to maintain a balanced tone, which means its not a given that we see rate cut in December policy – looks like it will be more data dependent. With inflation well within RBI's contours, and growth fumbling a tad, the outlook on rates remain constructive.
We expect bond yields to ease in the coming months and would continue to urge investors to enhance fixed income duration.”
Sandeep Yadav, Head - Fixed Income, DSP Mutual Fund
We expected the stance to changed in this MPC, so we are not surprised. Global yields and central banks will continue to weigh on RBI, especially since our macro parameters are somewhere in the middle and do not merit immediate action.
We believe rate cuts would occur soon, but will not hazard guess a timeline. If US data weakens, and central banks across world continue the rate cut trajectory then RBI has no reason not to cut rates.
If globally data strengthens and central banks move to "wait and watch", our rate cuts are likely to be delayed.
We remain long on bonds.
Piyush Baranwal, Sr. Fund Manager (Fixed Income), WhiteOak Capital Asset Management
“RBI kept the policy repo rate unchanged today at 6.50% while effecting a long overdue change in policy stance to neutral despite repo rate being on hold since Feb’23. This dovish move was balanced with repeated comments around durably aligning CPI to 4% target, likely to keep market expectations of easing under check given the risks from geo-politics and financial market volatility. Despite that, we see this change in stance as the first acknowledgement from RBI of the impending rate cut cycle, likely in the 50-75 bps range. This, coupled with the news of India’s inclusion in the FTSE Emerging Market Government Bond Index, third index inclusion over the last 1 year, augurs well for Indian bond yields going ahead.”
Manish Jain, Managing Director at Bajaj Broking:
“Looking at the current geo-political scenario, RBI had a little choice but to remain focused on inflation and balance growth at the same time. By keeping the repo rates unchanged and shifting from ‘accommodation’ to ‘neutral’, the MPC has taken a very calculated stance and is being watchful. The rural demand is trending upwards while urban demand continues to hold. Investment activity remains buoyant with government capex rebounding, which provides a breather.”
Nilesh Shah, MD, Kotak Mahindra AMC:
“RBI change of stance lays ground for future rate cuts. Their caution on NBFC sector is pro active to keep financial sector healthy. The RBI will be data dependent but looking to ease at the opportune time.”
Vijay Kuppa - CEO, InCred Money:
The Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5%, a decision aligned with expectations. The RBI's focus remains clear—steering the economy toward a durable alignment of inflation with its target amidst geopolitical tensions and stabilizing domestic inflationary pressures. Given the current macroeconomic environment, further rate cuts in the upcoming quarters seem unlikely.
Despite global economic uncertainties, India stands in a relatively stronger position, with real GDP growth for 2024-25 projected at a robust 7.2%. The RBI’s decision signals flexibility, which is crucial as global commodity prices, including crude oil and metals, witness volatility. This balanced approach ensures sustained economic growth without the risk of overheating.
With deposit rates at elevated levels, this presents an ideal opportunity for locking in high-yield fixed deposits. At the same time, high borrowing costs make a compelling case for increasing debt allocations in investment portfolios, offering a buffer against potential equity market corrections which might occur due to geopolitical tensions.
Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India):
“MPC delivered a pleasant surprise to the market with a change in stance to neutral from withdrawal of accommodation.
This, against the broader market consensus, reflects the confidence that current geopolitical uncertainty and other macro concerns will resolve on the constructive and positive side. Given the global rate cut momentum, domestic growth and inflation projections, it’s very likely that rate cut will happen sooner than current expectations. The broader consensus is that it may happen by Feb policy. Stance change in this policy was much earlier than market expectation. Based on this, we believe a rate cut may happen sooner than current market expectation of Feb policy meeting. More important is to assess the terminal repo rate in the ensuing easing cycle. We expect cumulative rate cuts of about 50-75 basis points.
For markets, direction is more important, and it got one today. Market is very confident is that there will be rate cut. One should note that bond market starts pricing in the rate cut before it happens, we have already seen some of that already with 10Y goi yields at around 6.75%, having already eased significantly in last few months. So, if investors wait for rate cut, it may be too late for them. If we assume terminal rate of 6%, I think 10 y GOI bond yield of 6.60-6.75% seems fair value.
Given the kind of corporate credit pickup last year, corporate bond spreads are above long-term average. So, I believe those funds that invests for 3-5 years which includes corporate bond funds, there is a good opportunity for investors. Investors having long term investment horizon and appropriate risk appetite, gilt funds are also suitable. Investors can also create a basket of both.”
Avnish Jain, Head - Fixed Income, Canara Robeco Mutual Fund:
“The RBI Monetary Policy Committee (RBI MPC) sprung a surprise. While repo rate remained steady, the stance was changed to “neutral”, setting stage for possible rate cut in the next policy in December. Expectations on stance change were low, and this was a positive surprise for the market. The RBI MPC probably drew comfort from low inflation readings in past few months and soft-core inflation. Though inflation may go higher in next few readings, overall RBI MPC noted overall inflation readings may trend down later. RBI MPC kept GDP projection at 7.2% for FY2025, though noted that high frequency data show some developing headwinds like lower PMIs, auto sales, and slowdown in GST collections. However, RBI expects economic activity to remain steady. On liquidity, the Governor said that RBI will remain nimble and flexible in managing liquidity to ensure orderly functioning of market.
The overall policy was positive for markets with yields down and curve steepening and short-term bonds rallied more on change in stance and expected rate cut likely in next policy meet. With induction of Indian FAR G-Secs in FTSE Emerging Market Bond Index, markets are likely to remain buoyant in near term.”
Deepak Shenoy, Founder & CEO, Capitalmind:
“RBI decided to keep the policy rate unchanged on the back of potentially higher inflation going forward due to a base effect from last year, higher food prices worldwide, and geopolitical conflicts. However they have changed their stance to "neutral" from the earlier one of withdrawal from accommodation, which bodes well for future rate cuts. While the 10 year bond has reacted by the yield falling by 7bps to 6.74%, the extent of the damage due to the base effect and near term food price rises will determine the future course of action. The actions in the middle east may also create imbalances that will drive rate changes by the RBI. However, growth projections remain strong at over 7% for FY 2025, and with surplus liquidity, there seems to be very few areas of stress. The policy has also improved RTGS/NEFT transfers by allowing banks to show the name of an account holder before a transfer is done, just like in UPI. This will reduce the stress in larger volume transfers.”
Abhishek Bisen, Head Fixed Income, Kotak Mahindra AMC:
Given that globally Central Banks are cutting rates with guidance for more cuts and India Real policy rates at ~ 200 bps, RBI MPC decided unanimously to change the monetary policy stance to “Nuetral” from “withdrawal of accommodation”. Inflation and GDP forecast for FY2025 has been kept unchanged at 4.5% and 7.2% respectively. With RBI changing stance to neutral, we expect RBI to cut rate by 50 bps over the course of next 1 year. RBI policy along with Indian Bonds being included in FTSE Emerging Markets Government Bond index, Indian 10 year G-Ssec has rallied and trading at around 6.75% levels post the policy announcement.
