Opportune time to up duration risk in Indian bonds, says DSP Mutual Fund’s Yadav

By Dharamraj Dhutia

MUMBAI (Reuters) – India’s benchmark 10-year bond yield could fall around 50 basis points in 2024, and it is an “opportune” time to increase duration risk, Sandeep Yadav, head of fixed income at DSP Mutual Fund said.

“Fixed income investors should increase debt duration further in 2024, as this the best time for that,” said Yadav. The firm manages assets worth 440 billion rupees ($5.29 billion) for the firm.

“This is also probably an opportune time for all investors, regardless of their risk appetite, to stretch their debt risk to the higher band of their comfort zone.”

Yadav recommended investors with a higher risk appetite to buy seven-year or higher tenor papers, and expects the 10-year yield to test 6.70%-6.75%, helped by strong demand and rate cuts by the U.S. Federal Reserve and Reserve Bank of India.

The 10-year yield was at 7.22% on Thursday, after reaching a low of 7.15% in mid-December.

In the current scenario, duration risk has a better risk-reward potential than credit risk, Yadav said.

“Risk for bond yields to rise from the current levels is low, and the worst that could happen is they may remain stagnant at these levels. Even in that case, one gets a handsome returns much above 7% in a year.”

Apart from the usual expectations of accommodative monetary policy, local demand is also expected to be robust amid growth of banks’ deposit base, while assets under management for insurers and pension funds could outweigh supply, Yadav said.

He also expects continued foreign inflows across the curve, due to inclusion of Indian bonds into JPMorgan’s emerging market debt index.

“With lower risks to inflation and currency, we may be entering one of the most optimistic years for debt markets.”

($1 = 83.2197 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Swati Bhat and Varun H K)