Head Fixed Income, Essel Mutual Fund
Mr. Pandya has a rich industry experience of 17 Years. Prior to joining PFMCL, Mr. Killol Pandya was Senior Fund Manager- Debt at LIC Nomura MF, and was responsible for management of the liquid and fixed income products with an AUM of around Rs.9000 crores. He was also instrumental in conceptualizing and managing India’s first G-sec ETF. Prior to LIC Nomura MF, Mr. Killol has also worked with Daiwa and SBI Mutual Funds. Mr. Killol Pandya has completed his Masters in Management Studies with specialization in Finance from K. J. Somaiya Institute of Management Studies and Research. He has also completed a Diploma Program in Capital Markets from The Institute of Chartered Financial Analysts of India (ICFAI).
Q: How do you assess the current scenario for the country?
Answer: The current bond market scenario is dominated by concerns relating to inflation, RBI rate action, Fiscal deficit management and international factors such as crude oil prices, global tariff wars and other geopolitical issues. Market participants are also aware that 2019 shall be the year in which India goes into general elections.
Q: Does an investor in debt funds to worry about the ? Is there any correlation between the of both ?
Answer: Despite a lot of speculation regarding the soundness of Indian companies (esp NBFCs), we are reasonably confident that the overall financial health of domestic lenders (banks and NBFCs) remains without unnatural stress. Of course, there are instances of downgrades and the recent instance of a high profile default. But we feel that there is no reason for panic or unnatural anxiety in our bond markets as of now. We also draw comfort from the active involvement of the Government in sorting out the causes of stress and discomfort in the system. Having said that, we continue to hold that constant monitoring of credit and financial health of issuers and companies is a must for all investors.
Q: What is your strategy to manage the duration and credit risk in your portfolio?
Answer: Credit risk is inherently more dangerous as far as bond investments are concerned since there exists a basic asymmetry of risk and return when engaging in credit risk. Therefore, we do not engage in taking inordinate or inappropriate credit risk at all points in time. Duration risk is a function of interest rate cycles and rate expectations. Therefore, duration strategy is contingent on several dynamic factors and changes from time to time. Currently, we are positioned towards shorter duration.
Q: RBI recently in an unexpected move decided to hold the key ? What are your views on the RBI's stance of of monetary policy?
Answer: RBI surprised most of the market participants by holding rates in the latest policy. However, it changed its stance from Neutral to Calibrated tightening. With 2 rate hikes behind us and a change in stance, it is unlikely that RBI will engage in any rate cuts in the near future. Therefore, given the macroeconomic concerns stated earlier, we see interest rates moving up directionally. We believe RBIs future actions may hinge on incoming domestic and international data with an accent on INR movements, Crude oil prices and fiscal deficit.
Q: How do you assess the fiscal deficit scenario in lieu of high & falling rupee in the election year? How do you think it debt funds?
Answer: There has been an expectation that fiscal deficit may be under upward pressure due to an increase or continuance in government spend even as revenue collections (primarily GST and Disinvestment) may fall short of earlier expectations. There is also a concern that a higher fiscal deficit may lead to an increase inflation. The depreciation in INR is significantly linked to the global appreciation of the USD and ought to be seen in that context. Therefore, while some degree of depreciation is to be expected, RBI may focus on ensuring the INR movement is natural and orderly.
A higher fiscal deficit usually amounts to higher government borrowings which are detrimental to Debt fund returns. Therefore, if we do see higher borrowings from the government (central, state and/or PSUs) , we may see continued upward pressure on yields.
Q: What would be your advice to investors who find to difficult to select debt funds for investment?
Answer: We have been espousing a case for maintaining lower duration and believe this policy, while giving some short term relief to bond markets, does not merit a change in the rates outlook for now. While we do not rule out trading opportunities, we are also not expecting an incremental change in our investment strategy or interest rate outlook on the basis of this policy. We reiterate our case for investors opting for Accrual based products for now & using trading opportunities to generate additional gains.