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Vinay Ahuja, Executive Director, IIFL Wealth, said Medium duration 3-6-year segments look attractive on a risk-adjusted basis with gradual deployment. Investors could consider allocations to target maturity funds (3-6-year maturity bucket) via index funds/ETF route.


Excerpts from the interview:

Q: In the rising interest rate scenario, which debt scheme will be best for investors to add in their portfolio?

A: The Reserve Bank of India's focus, which was on growth, is now seeing a shift to inflation. Given higher commodity prices and supply bottlenecks, inflation continues to remain sticky. Following this change in RBI stance, yields may continue to inch up and witness significant volatility. But a lot of this seems to be priced into the medium-term yields. Medium duration 3-6-year segments look attractive on a risk-adjusted basis with gradual deployment.

Investors could consider allocations to target maturity funds (3-6-year maturity bucket) via index funds/ETF route.

Q: Foreign investors have returned to equity markets, do you expect this trend to continue?

A: FIIs inflows are predicated upon both domestic opportunities as well as the global landscape. The primary factor driving FII inflows is inarguably the long-term growth prospects of the Indian economy. In the backdrop of rising inflation and consequent spike in interest rates FIIs were relentlessly selling in the first half of CY 22. FII selling has been moderating off late while DII flows continue to remain robust.

Fed has indicated that it is moving to the data dependent approach to rising rates. This, potentially, opens opportunities in emerging markets.

Q: Government bond yields have fallen sharply before RBI policy, but rose after the policy announcement, do you think it will rise further and what could be the saturation point?

A: Expansionary fiscal policy and globally driven inflation act as headwinds. We are witnessing policy normalization and RBI's focus shifting to Inflation from growth. Yields may continue to inch up and are likely to remain volatile for a while.

Q: Inflows in equity funds fell in July, but considering the rally in equity markets, do you think it will rise in coming months?

A: Nifty valuations are near long term averages and not in very expensive territory on the back of strong earnings growth over the last 1-2 years. RBI's increased focus on inflation could slow down this growth momentum. Inflation may put near term pressure on margins. We are already witnessing few downgrades in earnings expectations.

Having said that, India remains attractive compared to its peers and continues to be a good long-term structural story. Equity, as an asset class, may witness a period of high volatility. It remains the choice asset class from a medium to long term allocation but with a high probability of back-ended return profile.