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Below the comment on US FED Policy & impact by Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC.

FED’s dovish pivot will be supportive for the Indian bond market in many ways. First, it will ease pressure from the RBI while framing the monetary policy. We would expect the RBI to be less concerned about external conditions with US fed cutting rates.

Secondly, capital flows towards emerging markets should rise as risk-on trade takes hold. Indian bonds might emerge as a big beneficiary of foreign flows considering India’s inclusion in the global bond index. There is a large pool of capital over USD 6 trillion lying in the US money market funds. With expectation of US interest rates doing down next year, a large part of this asset pool would flow into more risker assets like longer term bonds or emerging markets.

We expect Indian bond yields to fall in 2024. For fixed income investors in India, real interest rates (interest rate minus expected inflation) are reasonably high and there is a potential to generate capital gains over the next 1-2 years.        

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