Prefer bonds to equities for now, says Nitin Bhasin, sees more rate cuts ahead

With equity markets under pressure and gold prices surging, investors are reassessing their asset allocation strategies amid global uncertainties and domestic earnings concerns. Against this backdrop, bonds are emerging as a more attractive option for institutional investors, offering capital preservation and potential for returns in a falling interest rate environment.

Speaking to ET Now, Nitin Bhasin, Head of Institutional Equities at Ambit Capital said that the firm continues to prefer bonds over equities in the near term, based on current valuation levels and earnings outlook.

He explained that while some stock prices have corrected, broader market valuations remain elevated, and corporate earnings growth for FY26 is expected to stay muted. Against this backdrop, Bhasin noted that bond yields may decline further as the rate-cut cycle progresses, supporting the case for increased allocation to fixed income.

Responding to a question on asset allocation amid rising gold prices, falling equity markets, and softening bond yields, Bhasin said, “We still maintain that we prefer bonds over equity in the near term… For most of the mutual fund managers or large asset allocators, we would say for this year it could be bonds over equity.”

He added that while stock prices in some companies have corrected, valuations in India have not actually corrected that much. He further said the earnings outlook is not very promising, pointing out that Nifty earnings grew by 8% in FY25 and that the consensus forecast for FY26 is also in the range of 9% to 11%. Bhasin noted that a significant part of the earnings growth is dependent on banks, IT, and global cyclicals, sectors that could face pressure in the current global economic environment.

Also read: As global bond markets roil, can Indian bonds offer shelter if US yields spike?

On the outlook for bond yields, Bhasin stated that despite already touching three-year lows, there may still be room for yields to fall further. “Given the rate cuts cycle, we think at least two more rate cuts should happen… perhaps in the next month or two, first, and then another 25 bps. At least 50 bps rate cuts should happen,” he said.

Bhasin also commented on liquidity trends, noting a shift toward a more accommodative stance. “We are moving from, let us say, constrained liquidity to more accommodative,” he said, while estimating that bond yields could go down another 30 to 50 basis points. He attributed this view in part to India’s steady GDP growth outlook, which he pegged at 6% to 6.25%.

This bond-market positioning, Bhasin indicated, underpins the firm’s overall bullish stance on debt instruments relative to equities for the current fiscal.

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