'Conservative Investors Can Look At Medium Duration Funds'

Avnish Jain, Head - Fixed Income, Canara Robeco Asset Management Company speaks to BW Businessworld on the recent sharp spikes in bond yields, debt fund risks and the ideal strategies for bond fund investors to adopt keeping global and macro factors in mind. Edited excerpts below.

The recent flip-flop in yields have left debt investors flummoxed. What's your take on yields in the next 12-24 months?
While Indian macro-economic environment continues to remain robust, global geo-political situation continues to cloud medium term outlook. The debt market volatility is an outcome of global uncertainty. It is expected that RBI may remain cautious awaiting clarity of new US economic and trade policies and impact of Brexit in Europe. Local developments on inflation trajectory (post demonetization), impact of GST implementation on growth and inflation, and clarity on monsoons may further provide data to RBI to determine future course of policy actions. While in short term yields may remain range-bound, over medium term we expect yields to trend down.

At this stage, should debt fund investors continue playing the duration strategy or switch predominantly to accruals? What sort of modified duration should retail investors be aiming for?
Considering the uncertainty in global outlook, it is advisable to be in Dynamic bond funds, which quickly adjust to changes circumstances to manage the portfolio. Conservative investors can look at medium duration funds investing in high quality accrual, taking advantage of attractive yield levels in corporate bonds.

What would you recommend for debt fund investors with a 3-year horizon and why?
In face of continued global volatility, Dynamic bond funds are best vehicles for long term debt investors as they are able to adjust duration quickly, in face of constantly changing market dynamics. For conservative investors, short and medium term funds with high quality accrual should suit them well as they match their appetite for lower volatility.

How do you see global risks playing out, and how are they poised to impact fixed income investments in India in 2017?
US government has already outlined some policies on immigration and trade, which are being seen as protectionist. Markets are awaiting direction on US fiscal policies, which could likely have impact on currencies and rates. Anti-Euro sentiment in Europe is gathering strength as more EU nations take cues from Brexit. This is likely to keep investors on the edge for the near term. In the emerging market space, India stands out with strong macro-economic landscape and vigilant RBI. Inspite of RBI holding on rates in February, FII investments in debt have been positive to the tune of Rs.7472 cr (as of 17th Feb 2017). This clearly points to FII comfort with current macro-economic and monetary environment and their expectation that in longer term rates may trend lower.

What is Canara Robeco's broad strategy going to be in 2017, fixed income wise?
The fixed income strategy will continue to focus on generating superior risk-adjusted returns for investors through a combination of high quality accrual and active duration management. In a scenario of global volatility creating local uncertainty, the portfolio managers will continue to actively manage their respective portfolios to optimize returns.