Hello, readers!
Bonds may not always grab the spotlight, but they’re the foundation of any well-rounded investment strategy. In this episode of The Big Perspective, I spoke with Sandeep Yadav (DSP Mutual Fund) and Suyash Choudhury (Bandhan AMC) about the shifting dynamics in India’s bond market, inflation, and the broader economic landscape. We covered everything from the role of mutual funds and retail investors in transforming the bond market to the RBI’s cautious stance on repo rates, and even the global geopolitical events shaping India’s future.
If you’re wondering where bonds fit in today’s volatile environment—or where our economy is heading—this newsletter is for you.
You can listen to this episode on Spotify, Apple Podcasts or watch the video here 👇
What's happening with inflation, interest rates and bond yields?
Inflation: where are we headed?
Inflation has been a hot topic globally, and India is no exception. Food inflation has been sticky, but core inflation has reached historic lows. Both experts agreed that demand-side inflation isn’t a major concern for India. Aggregate demand is still recovering from the COVID years, and supply-side factors, like food prices, have been the primary drivers of recent spikes.
Looking ahead, the trajectory of inflation seems manageable. As food price volatility subsides, inflation is expected to hover closer to the RBI’s target of 4–4.5% over the next 6–12 months. This outlook supports the case for a more stable economic environment in the near future.
Source : India Data Hub
The growing influence of mutual funds, pension funds, and retail investors
India’s bond market is undergoing a transformation, thanks to increasing participation from mutual funds, pension funds, and even retail investors. With institutions like EPFO and NPS growing at 20% annually, the demand for government bonds is steadily rising. Retail investors are also stepping in, driven by RBI’s initiatives to make bonds accessible.
This surge in demand, paired with the government’s fiscal prudence, is tightening the supply of bonds. Suyash noted that this structural shift is creating a “permanent bid” for Indian bonds, which could push yields lower and prices higher in the long run.
RBI’s cautious stance on repo rates
Why hasn’t the RBI cut repo rates despite inflation being under control? The answer lies in global dynamics. While inflation isn’t a major concern domestically, the RBI is wary of cutting rates too soon. Doing so could weaken the rupee, especially if other central banks like the Fed remain hawkish.
Historically, the RBI has prioritized currency stability alongside inflation management, and this cautious approach is no different. Both Sandeep and Suyash believe that while rate cuts may come eventually, they will likely be shallow—around 75 basis points over the cycle—unless the global economic situation worsens significantly.
Global geopolitics and their impact on India
The world is more interconnected than ever, and global developments are leaving their mark on India’s economy. With the U.S. and China facing growth slowdowns, and Japan taking a more hawkish stance on rates, the global economic balance is shifting.
For India, these changes present both challenges and opportunities. While geopolitical tensions could lead to short-term market volatility, India’s relatively robust macroeconomic position—a low current account deficit and strong fiscal consolidation—provides a solid foundation to navigate these uncertainties. Suyash highlighted how India’s bond market could become increasingly attractive to global investors looking for stability.
Investing opportunities in the bond market
So, where are the opportunities in the bond market right now? Both experts agree that government bonds are a clear winner. The supply-demand dynamics heavily favor government securities, making them an essential part of any fixed-income portfolio.
Triple-A-rated corporate bonds are also promising, particularly in the 2–3-year maturity range, where yields remain attractive. As Sandeep pointed out, this part of the curve offers a great balance between safety and returns, especially for investors seeking stability in uncertain times.
The big picture: India’s economic trajectory
Both experts were bullish on India’s long-term economic prospects. Strong growth, fiscal discipline, and structural reforms have placed India in a unique position compared to other emerging markets. While global risks like geopolitical tensions and inflationary pressures remain, India’s macroeconomic stability provides a strong buffer against external shocks.
For investors, this means staying focused on the long term. Bonds, especially government securities, offer a compelling opportunity in this environment. As Sandeep put it, “This is probably the best time for Indian bonds in the last 15–20 years.”
Our final thought
India’s bond market is evolving, offering opportunities for both institutional and retail investors. With inflation under control, a cautious RBI, and growing demand from long-term players like pension funds, the outlook for bonds is bright. At the same time, geopolitical and global economic shifts remind us that vigilance is key.
If you’re keen to dive deeper into these insights, catch the full episode here. It’s a conversation filled with actionable takeaways for navigating today’s fixed-income landscape.
Until next time, stay informed, stay diversified, and keep your eyes on the horizon!
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