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Market Commentary
Views of Axis Mutual Fund on RBI Monetary Policy - April 2022
Posted On : 2022-04-08 21:09:19( TIMEZONE : IST )
"The introduction of the Standing Deposit Facility (SDF) at 3.75% - 40 bps above the current reverse repo rate - will serve as the new floor of the policy corridor. The RBI has also charted a new path to return to pre-pandemic monetary policy - First, ensure system liquidity goes back to neutral from the current Rs. 3-4 lakh Cr net liquidity position. Second, narrow the corridor between MSF and LAF to 50bps from the current 90 bps and third, eventually to raise the repo rate in a calibrated manner.
Our actively managed portfolios continue to remain light on duration. We continue to retain our barbell strategy comprising of a mix of high quality long bonds and low duration assets including credit as we play the 'carry' theme. Our portfolios hold assets where we find opportunities across the curve. Market rates are largely delinked from policy rates and in essence have continued pricing higher policy rates over the next few quarters. Floating rate strategies maybe ideally positioned to cushion investors from rising rates, while providing incrementally higher 'carry'.
Credits remain an attractive play for investors with a 3-5-year investment horizon as an improving economic cycle and liquidity support assuage credit risk concerns especially in higher quality names. The capital gain story in this space has incrementally given way to 'carry' as AA names trade at meaningfully higher YTMs compared to comparable AAA securities. While we remain selective in our selection and rigorous in our due diligence, we believe the current environment maybe conducive to credit exposure. Investors looking to allocate to debt strategies are advised to look at fund segments with lower duration profiles and use target maturity strategies to gradually lock in incrementally higher rates over the next 6- 12 months. To reiterate, bond yields are likely to see increased volatility and hence investors should remain vigilant in their allocations."
