Mr. Marzban Irani
Chief Investment Officer – Fixed Income, LIC Mutual Fund Asset Management Ltd.
Mr. Marzban Irani is our debt market expert having rich experience of 22 years in Fixed Income. He has played a pivotal role in building LICMF’s image of Mutual Fund of investor’s choice for Debt funds. Mr Irani is a PGDBM - Chetana’s Institute of Management & Research, Mumbai. B.Com – Mumbai University
Q1. Do you think the Fed will adopt a measured approach, or will the slowdown in growth prompt them to implement rapid, consecutive rate cuts? If the pace of cuts accelerates, where do you anticipate interest rates in the US will eventually settle?
Recent jobs data has indicated a slowdown in the U.S. economy, which may influence the Federal Reserve's policy decisions. The Fed Fund Implied Probability is currently suggesting a strong likelihood of a rate cut in the September policy meeting and also a chance of an additional cut in the December policy meeting. In total, this implies a potential reduction of around 50 to 100 basis points by the end of 2024. Given the proximity to the upcoming elections, it is likely that the Federal Reserve will initially take a measured approach to rate cuts. However, if economic growth continues to weaken, the Fed has the option to accelerate the pace of rate cuts to provide additional support to the economy.
Q2. Will the Fed's decision to maintain, cut, or raise interest rates significantly influence India's economic and market trajectory?
India is currently positioned with strong macroeconomic fundamentals. The fiscal deficit is on a declining trend, inflation is decelerating with core inflation around 3% according to Ministry of Statistics and Programme Implementation, and growth numbers remain robust. These positive indicators suggest that India may not be heavily impacted by the Fed's decisions on interest rates. However, it is important to note that a hard landing in the U.S. could cause a knee-jerk reaction in Indian markets in the short term. Despite this potential short-term volatility, India's long-term economic prospects are expected to remain strong and resilient.
Q3. On budget day, the rupee experienced a sharp drop to a record low, likely influenced by reactions in the US markets and recession concerns. What’s your perspective on this movement?
The reduction in import duties on gold and other products during the budget is likely to impact the Current Account Deficit which may contribute to the rupee's decline. Given the ongoing geopolitical concerns, the rupee is expected to remain under pressure. However, the RBI's proactive approach in building up record reserves may offer a degree of protection, providing some immunity in the event of a global recession.
Q4. What factors contributed to the decline in the 10-year Indian government bond yield from 7.19% in March 2024 to 6.92% in July?
The decline in the 10-year Indian government bond yield can be attributed to several key factors. The demand-supply dynamics have favored demand, particularly from domestic investors such as insurance companies and pension funds. Additionally, policy continuity post-elections has provided stability, while the anticipation of JP Morgan bond flows has bolstered investor confidence. Furthermore, declining core inflation and the government's commitment to reducing the fiscal deficit have also played significant roles in lowering yields.
Q5. Experts believe Bond yields are likely to drift lower. In such a case, what should be your fixed income portfolio strategy?
For medium to long-term investors, it is advisable to consider medium to long-duration funds, tailored to your risk appetite. The three to five-year segment appears particularly attractive on a risk-adjusted basis, as a bull steepening is anticipated with the RBI potentially adopting a more dovish tone in the near future.
Q6. Can AMFI's 'Mutual Fund Mein Fixed-Income Wali Baat' campaign effectively broaden the appeal of mutual funds to include debt-focused investors, thereby driving long-term industry growth?
The campaign has the potential to significantly raise awareness about debt as an asset class, highlighting its importance for portfolio stability. By educating investors about the role of debt in a balanced investment strategy, the campaign can broaden the appeal of mutual funds to include debt-focused investors. This increased awareness and understanding could drive long-term growth for the industry by encouraging more investors to incorporate debt funds into their portfolios.