Returns from debt funds likely to moderate: ICICI direct.com

Yields on three month CDs fell by more than 200 bps from 11.5% to less than 9.5%

June 20, 2012 1:49 IST | India Infoline News Service
“Global commodity prices have slumped significantly since the start of the year on fears that a deepening economic crisis will reduce demand although a depreciating rupee will limit any soothing impact on domestic inflation,” according to ICICI direct.com Research’s monthly report dated 19th June.

In its equity market outlook, the report said, “Currently, overall market sentiments are extremely weak with a weak set of economic data. Although some tail risk concerns remain, we believe a large set of them have already been priced in.”

The report further added, with multi-year low GDP (gross domestic product) numbers and faltering industrial activity, expectations of an easing in interest rates, going forward, have increased. Whenever it comes, it may provide the much needed trigger for the markets. Any sharp correction should be utilised to accumulate equities as fundamental market valuations are far more reasonable and provide a margin of safety. The investment strategy should be to start allocating some portion of the investible surplus at current levels while waiting for some clarity before deploying the remaining part.

In its debt market outlook, the report said, “The market would take cues from international developments and crude prices along with RBI intervention. Yields on three month CDs (certificates of deposits) fell by more than 200 bps (basis points) from 11.5% to less than 9.5% while 12 month CD yields fell by 100 bps from 10.7% to 9.7%. Returns from ultra short-term and short-term debt funds are likely to moderate, going forward but remain better placed from the perspective of a risk-return trade-off. G-Sec yields are likely to provide trading opportunities since they have already moved significantly discounting the negatives. Dynamic bond funds with the flexibility to take some exposure to G-Sec should be considered by investors to capitalise on such opportunities.

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