Welcome Move by RBI

It is a known fact that equity has always attracted greater attention than its distant cousin bond or debt when it comes to economic growth. The bond market, however, remains a key component of the financial system and its robustness and economic growth are positively correlated. The Reserve Bank of India (RBI), last week, announced a reduction in the risk capital that banks need to set aside against investment in debt mutual funds and exchange-traded funds. This move will help in improving liquidity and deepening of the bond market.

Liquid funds and corporate bond funds may be the primary beneficiary of this move. It will also help to ward off some of the instances when debt funds were negatively impacted due to illiquidity in the system. Besides, it will also help in reducing the churning of inflows and outflows into debt funds as till now banks used to redeem the funds they invested in debt funds before the end of the quarter. Hence, the move, though not radical in nature, will address some of the concerns of the industry and is a step in the right direction.

The benchmark equity indices have come a long way since their low of March 2020. The sharp rise in such a short time has led many experts to doubt its sustenance. Nonetheless, if you increase your horizon both backward and forward, you can still see a pocket of opportunities. In our cover story this time we have tried to figure out the sectors and categories that are as yet undervalued and are likely to give you returns in double-digit in the next one year. From these sectors and categories, we have given four recommendations that look the most promising. You need to invest in these funds in a staggered manner based on your risk profile.

SHASHIKANT