'Our View On Interest Rates Is Still Positive And Fixed Income Markets Look Attractive For Investors'

Manish, congratulations on ICICI Prudential AMC’s stellar performance in fixed income in the past year. How do you see debt funds performing as a whole in the medium term, going forward?

We are of the view that ‘interest rate’ story is still intact and that the rate cycle has got elongated because of the RBI turning hawkish, changing its stance to neutral from accommodative. This pushed the yields upward thereby leading to attractive valuations for fixed income markets.

You manage the debt portion for the AMC’s flagship Balanced Advantage Fund... What’s our strategy there right now? Are you going to be focusing on duration, or do you believe that yields have more or less bottomed out?
ICICI Prudential Balanced Advantage Fund's (an asset allocation fund which dynamically manages equity and debt allocation based on market valuations) debt portion is actively managed based on the view of the debt market with an aim to benefit from changing interest rate cycles. Currently, while the focus on duration is definitely high at this point of time, the fund is positioned to optimise returns from accrual as well as duration with downward interest rate cycle underway.

ICICI Prudential Long Term Plan currently has a fairly high-modified duration of over 7 years... Does it make sense for investors to choose this fund right now, or should they opt for lower duration funds like ICICI Prudential Income plan or Short Term Plan?
Our view on interest rates is still positive and fixed income markets look attractive for investors. Therefore, investing in ICICI Prudential Long Term Plan could be a suitable option. The fund aims to dynamically manage the maturity tenure based on an in-house Current Account Deficit (CAD) model. The current modified duration of the fund is reflective of aggressive duration strategy as per our macro stance. This fund is ideal for the investors who are looking to take lower risk since the fund has a Model based approach which helps it to position itself ahead of the market. From a three-year perspective, investors can choose to invest in this fund.

Has Gold lost its shine, or will the yellow metal outperform in the medium term?
Gold should be seen as a hedge to one’s portfolio and when it comes to portfolio allocation, gold investments could not ideally be in excess of 5-8%. While the asset class has not performed for the past five years, we believe it could perform well in two instances. First, when there is high inflation, and/or second when there is major risk off in financial assets. At this stage, the probability of the both the event is low. But, a portfolio could be subject to tail risks in order to manage which, an exposure to gold is important.

What do you recommend investors who are looking to invest in fixed income markets?
The fixed income market remains supportive for investments, due to favourable macroeconomic indicators such as inflation, Current Account Deficit, Fiscal deficit and low credit growth. On a debt valuation basis, investors could choose moderate duration or model-based duration funds as they may offer better risk-adjusted returns. From an investment perspective, investors could consider short-to-medium duration funds and investors with a longer time horizon can consider investing in funds wherein the duration is dynamically managed such as ICICI Prudential Long Term Plan.