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HDFC AMC has highlighted the potential in short-term corporate bonds, citing higher yields compared with government securities. AAA-rated corporate bonds with three- and five-year maturities have increased around 50 basis points recently, while spreads over government bonds widened to 75-85 bps. The fund, managing debt worth INR 2.61 trillion (USD 29.60 billion), suggests investors may consider corporate bond-focused schemes with durations up to five years. Factors such as ample banking liquidity, potential RBI rate cuts, and stable inflation support this outlook. Despite fiscal pressures from tax revisions, government measures are expected to maintain deficit targets.
HDFC Asset Management Company, India's third-largest fund by assets, has expressed optimism about short-term corporate bonds, highlighting their comparatively higher returns over government securities of similar durations. Anil Bamboli, senior fixed income fund manager at HDFC AMC, noted that AAA-rated corporate bonds with three-year and five-year maturities have risen about 50 basis points over the past three months. He added that the spread over government bonds has widened to 75-85 basis points. Advertisement
Bamboli pointed out that corporate bond spreads remain above the long-term average, partly due to a significant increase in bond supply. The fund house oversees debt worth around INR 2.61 trillion (USD 29.60 billion). Considering the surplus liquidity in the banking system and elevated yield spreads, he suggested that investors could look at schemes with durations of up to five years, particularly those focused on corporate bonds.
Looking ahead, Bamboli expects bond yields to trend slightly lower in the medium term, supported by slowing economic growth, stable inflation, and dovish commentary from the US Federal Reserve, which could provide room for the Reserve Bank of India to consider a rate cut of 25 to 50 basis points. He added that inflation in the first quarter of the next financial year is likely to remain below the RBI's projection of 4.9%, helped by a healthy monsoon and recent reductions in goods and services tax rates.
Despite an estimated net revenue loss of around INR 480 billion for Indian states and the federal government due to the tax revision, Bamboli expressed confidence that New Delhi would still meet this year's fiscal deficit target of 4.4% of GDP. He explained that the government could manage the deficit through a mix of higher duties on auto fuels, lower spending, and, if necessary, short-term borrowing via treasury bills or cash management bills.
While market sentiment towards bonds has been largely negative, Bamboli believes most of the downside risks are already reflected in current yield levels, making the present an attractive entry point for investors.
Source- Reuters
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