DSIJ in conversation with Sandeep Bagla , CEO at TRUST MF

What will be the impact of the second wave of Covid-19 on the Indian economy and by what time you expect the economy to achieve its potential growth rate?

 The second wave is likely to have multiple impacts- possibility of a slowdown in growth, supply-side disruptions leading to an increase in prices, loss of lives, increase in stress levels, continued easy monetary policy, uncertainty over future growth and employment. The economy comprises the organised as well as unorganised sectors and the adverse impact on the production, employment, and earnings in the unorganised sector is not easily visible.  The potential growth rate is more of a theoretical concept. It will be some time before India reaches its true potential, but the building blocks in terms of a stable currency and low inflation, greater employability, better education, and efficient tax collection mechanisms, lesser leakages are falling into place, which makes one hopeful for a brighter future 

With rising inflation, what is your take on interest rate going forward? Have we seen the last of rate cuts by the RBI in the near future?

In all likelihood, rates in India are unlikely to be revised lower. Both by historical standards and the inflationary conditions, rates and corporate spreads have dipped significantly below historical averages. What we need at this point in time is capital expenditure which is missing, given the low credit deposit ratio.

While inflation is looking to remain towards the upper band of RBI’s comfort band of 2-6 per cent, it is caused mostly by supply-side factors. Monetary policy measures could be used to create conditions such that supply is boosted to bring down inflation. Generally, monetary policy tightening is more successful when inflation is led more due to a spurt in demand.

What is the range do you see for the benchmark 10-year G-Sec yield for the remainder of CY21?

Historically, the 10-year Gsecs have traded about 200-250 bps over expected inflation. Given that inflation is expected to be close to 5%, the 10-year bond yield could rise to as high as 7% in the medium run. We do not see the possibility of a significant fall in 10-year bonds in the near future unless there is a significant fall in commodity prices and inflationary expectations.

Given the current scenario, how should investors approach fixed-income investments? What according to you are the best alternatives for debt investors?

Given that real rates are low, inflation expectations are high and liquidity is likely to remain easy, any exposure to debt schemes above-average duration of 3 years is not recommended. Investments in short-term funds and Banking and PSU debt funds should yield optimal results.

Our AMC offers TRUSTMF Banking & PSU Debt Fund with a maturity of 3 years-a roll down fund wherein the interest rate risk keeps reducing along with time. We are also likely to launch TRUSTMF Short Term Fund soon.  Our fixed-income funds follow a unique LimitedActiv style of fund management, which combines elements of both active and passive styles and also has a strategic knowledge partnership with the premier rating agency, CRISIL.

In terms of asset allocation what portion of total assets for a moderate investor should go to debt funds and in which category?

For a moderate risk profiled investor, it would be probably ideal to invest 60-70 per cent of the corpus in debt funds. While 40 per cent could be allocated in corporate bond funds for stability and regular income, 15 per cent each could be invested in cash funds to meet transactional requirements.

Advice should be sought from a financial planner for risk profiling as well as asset allocation.