Interview with Prashant Pimple, CIO - Debt, JM Financial Asset Management

Investors are advised to match the funds with their investment horizon, asserts Prashant Pimple, CIO - Debt, JM Financial Asset Management

Where do you see the benchmark yield in FY23, given the higher borrowing expected by the Union Government?

Higher borrowing is a factor of fiscal deficit as well as inflows in small saving schemes, etc. The budget of FY23 was made on realistic assumptions. However, a lot seems to have happened since then given the geo-political issues and resultant rise in oil, fertilisers, food subsidy, etc. We don’t rule out the need for borrowing more than as budgeted but it is too early to gauge the same as there are several moving variables on fiscal deficit. Nevertheless, we expect yields in general to have an upwards bias in a rate hiking scenario.

Should investors consider other alternatives such as short-duration or floating rate funds to optimise their returns in the current scenario?

Investors are advised to match the funds with their investment horizon. Also, as significant re-pricing of the yield curve has already happened, investors may consider investing in medium to longer duration funds in a staggered manner.

How will the frequent interest rate hikes by US Federal Reserve in the coming months affect Indian debt markets?

Central banks globally, including the Federal Reserve, are likely to be on a rate hike path to get inflation back under control. The food and commodities-led inflation is now percolating into a broad-based inflation which if not controlled may result in reducing potential growth. Therefore, even if short-term growth potential is sacrificed, central banks will not shy away from hiking rates. While inflation is the main reason for the RBI to raise rates, they will also have to do it in order to balance the resultant impact on currency. This would mean that the Indian debt markets shall continue to see higher rates, flatter yield curve and lower liquidity till real rates become substantially positive.