Debt fund managers bullish on G-Sec after index inclusion

ABHISHEK KUMAR 
Mumbai, 19 March 

Cite better balance between demand and supply as well as inflation relief

Debt fund managers are increasingly embracing government bonds due to favourable demand supply dynamics. This comes ahead of their inclusion in the global bond indices, along with improvements in the macroeconomic landscape and easing inflation.

“The demand-supply situation is well-managed, given the addition of new demand forces and lower-than-expected supply of bonds. The Reserve Bank of India’s (RBI’s) liquidity policy also seems to have changed, with some easing observed. Directionally, we all see headline inflation remaining lower than it was six to seven months ago,” said Rajeev Radhakrishnan, chief investment officer (CIO)-fixed income at SBI Mutual Fund (MF).

As of the end of February, most dynamic bond funds the only category offering complete flexibility to fund managers in terms of asset class and duration were heavily invested in government securities (G-Sec), with exposure having increased over the past few months. The ICICI Prudential All Seasons Bond Fund, the largest in its category, has 58 per cent of its corpus invested in longer-term G-Sec, up from 39 per cent in January.

“Given that both fiscal deficit and current account deficit have been lower, which has made the model slightly more bullish, we have added G-Sec to the portfolio,” said Manish Banthia, CIO-fixed income, ICICI Prudential MF. SBI Dynamic Bond Fund now has nearly 80 per cent exposure to G-Sec, compared to 62 per cent six months ago.
The inclusion of government bonds, mostly longer-term, has majorly increased the average maturity of dynamic bond funds. Fourteen of the 22 schemes now have an average portfolio maturity of 10 years or more. longer-term G-Sec, up from 39 per cent in January.

“Given that both fiscal deficit and current account deficit have been lower, which has made the model slightly more bullish, we have added G-Sec to the portfolio,” said Manish Banthia, CIO-fixed income, ICICI Prudential MF. SBI Dynamic Bond Fund now has nearly 80 per cent exposure to G-Sec, compared to 62 per cent six months ago. The inclusion of government bonds, mostly longer-term, has majorly increased the average maturity of dynamic bond funds. Fourteen of the 22 schemes now have an average portfolio maturity of 10 years or more.



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