In an interaction with Anurag Mittal, Head – Fixed Income, UTI AMC

In an interaction with Anurag Mittal, Head – Fixed Income, UTI AMC

Siddharth Mane
/ Categories: Trending, Interviews

Every scheme of ours is defined by our GIMS framework which clearly outlines the risk each respective scheme can undertake, states Anurag Mittal, Head – Fixed Income, UTI AMC.

What are your views on the Indian bond inclusion in the JP Morgan Bond Indices? How do you think it would impact the Indian fixed income market as well as the domestic currency?

Indian Government bonds have been included in the JP Morgan Government Bond Index-Emerging Markets & Bloomberg Emerging Market Local Currency Government Index in the last financial year. Given the assets tracking these indices and the weightage of Indian bonds, it is expected to bring about USD 25-30 billion of inflows in Indian bonds in the next 12-15 months. From a currency standpoint, this is a positive for our balance of payments for FY25. From a longer-term perspective, higher foreign participation in Indian fixed income is also constructive for our fiscal & monetary policy as they will be subject to greater scrutiny as well as more susceptible to global volatility.

Hence, the Government/RBI will need to ensure that both fiscal & monetary policy remain transparent & in line with the committed paths.   

 

How do you navigate the trade-off between yield and credit quality in your fixed income portfolio?

Typically, we try to address the risk a portfolio can take and accordingly assess if we are getting adequately compensated for the same. Every scheme of ours is defined by our GIMS framework which clearly outlines the risk each respective scheme can undertake. Our team of credit analysts conduct independent, in-depth analysis to build a diverse independent universe and every fund manager as per their scheme mandate builds the exposure while looking at the best risk-adjusted return potential.

 

Do you believe we have reached the peak of the interest rate cycle, and that investing in longer duration bonds will be more beneficial right now?

We expect a shallow rate cycle of 50-75 bps given the still robust domestic growth outlook. As rate cuts are likely to be modest, we believe moderate duration funds (1-4 years) present a more suitable opportunity for investors with an investment horizon of more than one year as they offer relatively higher accrual as well as the possibility of participating in capital gains as the rate cycle turns.

 

What allocation do you believe individuals should aim for between fixed income and equity? How can one determine the appropriate percentage allocation for each?

There is no single answer as every allocation should be determined with an investor’s investment goals, risk tolerance and investment horizon in mind. The most important underlying principle while deciding asset allocation is “not to put the cart before the horse” i.e. first understand one’s risk appetite & then consider investing. 

Many market participants first determine the return they would like and then they chase assets without fully understanding the risk involved or volatility. We believe it should be the other way around.

Once an investor’s goal is determined, firstly an investor should try to self-assess their risk appetite, if higher mark-to-market volatility doesn’t affect them and they have a long-term investment horizon in mind, probably they can consider higher allocation for equities but if they are looking for a stable and predictable return, their allocation to high quality fixed income should be higher.

 

What are your views on the credit spreads of investment-grade bonds? Do you see it widening or narrowing for this financial year?

The credit spreads for high-quality bonds compared to Government bonds are narrower due to their lower supply as high-quality corporates have focused on deleveraging since Covid. We expect spreads to remain range-bound as supply is expected to remain muted in the near term as well. However, the high real yields for such bonds are attractive for patient investors given the expectations of a stable inflationary environment.

 

Disclaimer:

The views expressed are the author’s own views and not necessarily those of UTI Asset Management Company Limited. 

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

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