Mr. Amit Tripathi
CIO – Fixed Income. Reliance AMC

Amit has more than 20 years experience in Financial Services. At the age of twenty-eight, he became one of the youngest Debt Fund Managers at Reliance Capital Asset Management Ltd. He has been with RMF for around 14 years and in that time, he has evolved into a stellar portfolio manager, combining experience across the yield curve, with robust credit evaluation skills.

Amit has been an integral part of RMF's journey to become one of the largest and most respected fund houses in the country. He has successfully managed various fixed income and hybrid funds which have been recognized for superior performance both nationally and internationally. In his current role as CIO- Fixed Income, he leads a team of 20 highly motivated and experienced fixed income professionals.

Q: The government recently unveiled Rs.2.1 lakh crore of recapitalisation plan for public sector banks. To what extend do you feel this will help improve the credit growth in the economy and which sectors will benefit the most?

Answer: While the stressed assets are mainly concentrated in select sectors (e.g. steel, power, infrastructure etc), the huge NPAs in the banking sector have constrained the overall lending. The overall size of recapitalisation at Rs. 2.11 trn is substantial (30% of public sector banks’ capital)and will not only make adequate provision for current NPAs in PSU banks’ books, but also give capital boost for further lending. It will help accelerate credit growth especially to MSMEs and priority sectors and thereby economic growth over the medium term.

Q: Has the government side-stepped fiscal prudence with the recapitalisation move, especially since the fiscal deficit is already at 96%?

Answer: Currently details like issuing agency and modus-operands of bond issuance are not known to understand the fiscal impact. Even if recap bonds form part of budget resulting in higher fiscal deficit and increase in the debt/GDP ratio the markets are expected to be marginally impacted in absence of no additional supply.

Q: How does improved availability of bank credit affect the debt markets?

Answer: Improved availability of credit may give a boost to the economic growth, which in turn adversely impacts the inflation expectations and debt market. However despite improving the credit availability we believe the bank recap programme will not have any major impact on bond yields in short term as the bond issuance will be cash and supply neutral. On a long term basis on one hand, the yield might move up on the back of - a) expansion of total government debt & b) boost to economic growth and thereby inflation expectations. At the same time, yields might moderate on following grounds: Massive bank recapitalisation programme will help in not only correcting severely impaired PSU banks’ balance sheet, but also boost their lending capacity. This, in turn, will help in effective transmission of monetary policy. So in long run, the bank recap programme will not have any major impact on bond yields.

Q: What is your view on the interest rate movement from here on? Is there any scope for further moderation of rates and what factors will be instrumental for same going forward? 

Answer: We have seen a secular fall in interest rates over the past few years as economic fundamentals have improved positively. RBI maintained its ‘Neutral’ stance in the recent October policy with further rate action to be data dependent. Further rate cuts to depend on future GDP, fiscal deficit and CPI data points.

Q: What has been your duration / investment strategy your funds in general? In which direction do you see the yields moving in near to mid-term and why? 

Answer: There is an investment mandate for every fund which is followed and duration strategy would depend on the market view. Yields across the curve has risen by 15-30bps in the past three months due to various factors such as

  1. Crude prices crossing USD 60levels and thereby increasing inflation expectations

  2. RBI OMO sales sucking out liquidity

  3. Fear of additional stimulus by government leading to fiscal deficit breach.

Yields may see some respite if RBI slows its pace of OMO sales, if government sticks to its fiscal target of 3.2% as budgeted and crude prices stabilizes. With low credit off take, interest rates cannot rise much higher for now. Thus with the current interest rate structure in India, we will stay in a low interest rate regime for longer than expected.

Q: What would be your advice to investors looking to invest in debt funds? Which category of debt funds would you suggest for investment with time horizons of (a) up to 1year (b) between 3 to 5 years and (c) beyond 5 years?

Answer: Investors should consider debt funds in the current scenario as returns from traditional investment avenues have come down in recent times. For investors looking to invest with a time horizon upto one year can consider Ultra short term funds, for between 3-5 years can consider accrual funds and while for above 5 years can consider accrual funds.

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