Now is a great time to invest in Indian fixed income says Saurav Ghosh. Here’s why

With equity markets experiencing heightened volatility and global economic uncertainty, now is a great time to invest in Indian fixed income, according to Saurav Ghosh, a fixed income expert and co-founder of Jiraaf. In an interaction with ET Markets, Ghosh stated that he sees a strong opportunity for investors to lock in attractive yields ahead of anticipated rate cuts by the Reserve Bank of India (RBI).

“Right now is a great time to invest in Indian fixed income given that equity markets are obviously highly-highly volatile. Right now global economic markets both because of the US is obviously very-very uncertain, so Indian fixed income with its stability is a great asset class to have in your investment portfolio,” he said.

So what should investors do?

Ghosh believes that investors should capitalize on this window by taking exposure to longer-duration government securities (G-Secs) and State Development Loans (SDLs), which offer low credit risk and attractive yields.“Given the rate cut is expected, it is quite, I would say, opportunistic right now to take longer duration exposures at the moment,” he said.

For investors seeking flexibility, dynamic bond funds present an excellent opportunity, as fund managers can actively adjust their portfolios based on evolving interest rate trends.

For those with a moderate risk appetite, Ghosh recommends AAA and AA-rated corporate bonds with a duration of 24-36 months, which he sees as a good wealth creation opportunity.

“If you lock-in rates right now with rate cuts again expected, it is a good time to participate in corporate bonds,” he advised. The appeal of these corporate bonds lies in the fact that credit spreads remain slightly elevated due to tight liquidity, making it a good time for investors to enter.

On the short-term fixed income side, Ghosh noted that money market yields remain elevated due to liquidity constraints, making shorter-duration G-Secs and SDLs an attractive option. He pointed out that RBI’s recent Rs 50,000 crore liquidity infusion through G-Sec purchases is expected to provide some relief to short-term yields. However, short-term yields are likely to stay high in the immediate future before easing after the rate cuts materialize.

The bigger picture: Domestic and global bond markets

The broader Indian bond market has been positively correlated with US 10-year Treasury yields, though the spread between the two has narrowed to historical lows of 250 basis points (bps).

“Historically, the spread between US Treasury yield and India 10-year G-Sec used to be above 350 bps, but it has now come down significantly,” Ghosh observed.

Foreign Portfolio Investors (FPIs) have been withdrawing from both Indian equity and debt markets, largely due to currency volatility. However, FPI inflows into Indian fixed income could increase in the near future, especially if the US Federal Reserve begins a rate cut cycle.

“If FPI inflows actually start increasing and the trend reverses, yields are likely to come down with more increasing demand,” he explained. Investors can track weekly FPI inflow trends to time their bond market entry and maximize returns.

Ghosh also noted that the recent move by Citi to downgrade US equities and upgrade China to overweight could shift global investment flows toward emerging markets like India. He believes that Indian fixed income markets remain attractive due to India’s fiscal discipline, stable currency management by RBI, and strong economic growth prospects.

With rate cuts around the corner and attractive yields still available, Saurav Ghosh believes that the window to capitalize on India’s fixed-income market is now.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)