Avnish Jain, Head of Fixed Income, Canara Robeco Asset Management Company

India Infoline News Service | Mumbai | August 17, 2017 13:57 IST

We expect inflation to remain below 4% in March 2018 which may give RBI room to deliver another 25bps rate cut in FY2018.

Avnish Jain is the Head of Fixed Income at Canara Robeco Asset Management Company, Robeco’s joint venture in India. Avnish with over 19 years of experience across many segments of the industry is actively involved in managing the fixed income funds which include Canara Robeco Balance Fund, Canara Robeco Monthly Income Plan, Canara Robeco Indigo Fund and Canara Robeco Medium Term Opportunities Fund. Avnish Jain has done his B.Tech from IIT Kharagpur and post-graduation from IIM Kolkata.
 
Canara Robeco Asset Management Company (CRAMC), the Investment Managers of Canara Robeco Mutual Fund, is a joint venture between Canara Bank and Robeco of the Netherlands, a global asset management company. The joint venture brings together Canara Bank's experience in the Indian market and Robeco's global experience in asset management.
 
Canara Robeco Mutual Fund is the second oldest Mutual Fund in India, established in December 1987 as Canbank Mutual Fund. Subsequently, in 2007, Canara Bank partnered with Robeco and the mutual fund was renamed as Canara Robeco Mutual Fund. Since then, it has consistently been one of the fastest growing mutual funds in India in terms of AUM. Our solutions offer a range of investment options, including diversified and thematic equity schemes, hybrid and monthly income funds and a wide range of debt and treasury products.
 
In an interaction with IIFL, Avnish Jain said, “We expect inflation to remain below 4% in March 2018 which may give RBI room to deliver another 25bps rate cut in FY2018.”
 
Indian equity markets have seen a terrific rally on YTD basis, where do you see markets going forward in FY18?
Markets have recovered from the levels witnessed post February 2017 policy wherein RBI had kept rates on hold and changed stance to 'neutral'. Since then inflation has continued to surprise on the downside, hitting a series low of 1.5%. Monsoon has been good and oil prices have retreated from their highs. RBI delivered the much-expected rate cut in August policy while retaining a neutral stance. The short end of the curve has rallied with the bull steepening seen in the yield curve. We believe that inflation is likely to remain subdued and is likely to undershoot RBI’s target of 4% in March 2018. We feel that with high real rates (~175bps-200bps) and moderate growth, there may be room for further monetary easing. We expect yields drift down on the expectation of more rate cuts.
 
What’s your view on inflation? Do you foresee any rate cuts during 2017-18?
Inflation has been surprising on the downside. Apart from the softer food inflation, core inflation has been also moderating. We expect inflation to remain below 4% in March 2018 which may give RBI room to deliver another 25bps rate cut in FY2018.
 
What are your views on India’s fixed income market? How do you foresee yields moving in the near to mid-term?
Since 2014, Indian debt markets have been supported by improving macroeconomic landscape with falling inflation and CAD along with a stable rupee. Government’s commitment to reducing fiscal deficit coupled with RBI’s adoption of inflation targeting monetary policy framework has given global investors comfort to look at India as a long term investment destination. This has led to unprecedented FII flow into the debt markets (both government and corporate bonds) in the past few years. With RBI’s focus on keeping inflation under control, we expect that yields are likely to soften over near to mid-term.
 
What asset allocation strategy do you suggest for investors?
In debt fund space investors have options to invest in liquid/ultra-short term funds, short/medium term funds and income/dynamic funds. Depending on liquidity requirements and investment horizons, investors can allocate funds. For example, if there is some regular liquidity requirement, investors should invest in liquid/ ultra-short term funds where the volatility of returns is low. In case the investment horizon is longer that is 3-5 years, investors can choose to invest in income/dynamic funds.
  
Mutual Funds' AUM inched closer to record highs in July led by inflows in equity, debt schemes. Where do you see demand for the same in the remaining fiscal year?
Post demonetisation, liquidity in the banking system remains high. With credit growth at an abysmal level of 5-6% and not expected to increase in a hurry, liquidity is expected to remain ample in the near term. Excess liquidity has forced banks to reduce deposit rates, leaving investors with little options but to look at alternate investments. With real estate and gold investments losing their sheen, investors are likely to increasingly move towards equity and debt products in the mutual fund space as an avenue for long term investments.
 
What are the advantages of investing in dynamic bond funds?
As the name implies, dynamic funds are actively managed funds, wherein the duration of the fund is actively changed to take advantage of volatility in bond yields, that is, the fund can increase duration on the expectation of lower yields and reduce duration in case yields are expected to go up. The fund can also play across various asset classes, i.e. sovereign, state development loans and corporate bonds, to take advantage of any mispricing. Since these funds are actively managed, dynamic funds are likely to generate superior risk adjusted returns when markets are volatile compared to a passively managed fund.

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