KCK Wealth

Mr. Ardhendu Bhattacharya

Chief Investment Officer - Fixed Income, SBI Mutual Fund.

Mr. Ardhendu Bhattacharya has over 16 years of experience in the financial sector. He joined SBIFML in April 2019 and currently holds fund management responsibilities. Prior to this, he was associated with ICICI Bank and Citibank N.A., where he held roles involving trading in money markets, short-term corporate bonds, and currency and trade sales.

Please note we have published the answers as it is received from the Fund Manager of SBI Mutual Fund.

Q1. The Indian rupee has witnessed depreciation pressure in recent months despite India's relatively strong macroeconomic fundamentals. How should investors interpret this weakness? Is gradual currency depreciation a natural feature of a growing emerging economy, and what are your views on the outlook for the rupee over the medium term?

Ans: RBI & GOI have taken steps to stem the depreciation of INR recently. High global yields and elevated oil prices have been the main concerns for USD/INR and any resolution on the middle east crisis should act as a tailwind for INR as FPI flows return. However, we believe more steps are needed to attract longer more durable capital and that remains a key monitorable.

Q2. Investors often focus on the returns generated by debt funds but pay less attention to the risks taken to achieve them. What are some common misconceptions investors have about fixed income investing, and how can they evaluate debt products more effectively?

Ans: Portfolio construct is the most important thing to analyze while investing in a fixed income fund. Also understanding fund manager and AMC positioning in context of overall macro environment is important as it helps one take a call on the market.

Q3. With geopolitical tensions continuing to influence global markets and Brent crude prices remaining a key variable for India, how do you assess the potential impact on India's G-Sec yields? To what extent could higher oil prices and external uncertainties alter the outlook for inflation, RBI policy, and the domestic bond market?

Ans: The worst seems behind us in the near term, while the way down won’t be a one way street both yields as well as USD/INR might have made their respective near-term peaks. The tail risks of interest rate defense has been priced out and we believe conventional monetary policy will resume as markets normalize. Expect volatility, none the less markets should be well behaved till the second half of the year comes by and enhanced borrowings by center and states hit the markets.

Q4. Gold has delivered strong returns amid geopolitical uncertainty, central bank buying, and concerns around global debt levels. In the current environment, how should investors think about gold's role within a diversified portfolio alongside traditional fixed income allocations?

Ans: Gold has been under pressure in the reflationary trade as yields spike worldwide, but easing concerns on west Asia should support the category in the near term. Investors should look at commodities as part of their asset allocation and not chase near term trends. A repeat of last years tear away rally is unlikely as these categories tend to mean revert in the medium term.

Q5. India's decision to exempt certain foreign investors from taxes on government bond investments and broaden access to the debt market is expected to enhance its attractiveness as a fixed income destination. How significant could these measures be in driving foreign participation, and what impact might they have on bond yields and the evolution of India's debt market?

Ans: It has helped already, we have seen almost 20k crs hitting the markets since policy day. FCNRB and ECB related measures should also attract foreign capital to the tune of 40-50 billion USD and this will chase domestic assets including bonds. Yields have cooled off and the curve has steepened in anticipation of these flows. The success of the FCNRB scheme will determine the extent of softening in domestic markets, we believe there is value at the shorter end for some further easing.

Q6. As investors transition from wealth building to wealth preservation and income generation, how should they think about SWPs from mutual funds compared with annuities and traditional deposits? What withdrawal rates do you believe are sustainable, and which fund categories would you recommend for retirees seeking regular income?

Ans: For a retiree a mixture of accrual and duration within the overall asset allocation is key.

We like high grade credit portfolios like corporate bond and accrual products like medium duration along with gilt and long duration for this.

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

Mr. Pradeep Kesavan

Chief Investment Officer - Equity, SBI Mutual Fund.

Pradeep is the Equity Strategist with SBI AMC and has over 20 years’ experience panning Corporate Finance, Corporate Strategy, Investment analysis, and research. He has worked extensively in public as well private markets across areas like equity strategy, private equity due diligence, M&A and Corporate strategy, merger integration as well as analysis of corporate fundamentals and strategies using proprietary frameworks. As the equity strategist he tracks and analyses key macro as well as micro factors that affect capital markets using a combination of quantitative and fundamental techniques to provide sector allocation calls. Pradeep joined SBI AMC in Jul’21. Prior to SBI AMC, he has spent 9 years with Morgan Stanley, 4 years in Accenture Strategy Consulting and 4 years with Elara Capital as Equity Strategist. He holds a Bachelor’s degree in Commerce, Masters in Business Administration and is a CFA Charter holder.

Please note we have published the answers as it is received from the Fund Manager of SBI.

Q1. Despite sustained FII selling in recent months, domestic institutional flows and SIP contributions have continued to absorb the pressure. How significant is this structural shift towards domestic ownership of Indian equities, and does it fundamentally change how investors should think about market resilience going forward?

Ans: FII’s ownership in Indian Equities has seen a sharp decline over the last 5 years. From ~20% in 2020, its now down to ~16%. Correspondingly, domestic institutional share has increased from ~16% to ~19.5% currently. However, there is some evidence to suggest that while domestic participation makes markets more stable and resilient, FIIs tend to contribute more towards market direction (both upside and downside). Therefore, from a retail investor perspective, they could expect a more stable market profile as domestic investors’ share in the market increases.

Q2. Even as markets have remained in a prolonged consolidation phase, corporate earnings have continued to compound- meaning valuations have quietly moderated from their peaks. Does this reset improve the risk-reward for long-term investors, and what triggers could drive the next sustained up-move in Indian equities?

Ans: Yes, from the peak valuation levels seen in 2024/25 levels, the market valuations (especially of largecaps) have corrected meaningfully and at current levels are trading close to long term averages. But having said that FY26 earnings growth came in at single digit on the back of a low base of FY25 (which was ~1% growth). So overall earnings delivery hasn’t been strong over the last two years. Looking ahead, there is a strong expectations for earnings recovery and we believe conditions look reasonable for a strong FY27. Receding macro (crude and currency) risks and improving geopolitics (US-Iran war, to lesser extent Russia-Ukraine) will be key catalysts.

Q3. After two years of sideways markets, many investors are seeing modest or even single-digit SIP returns and questioning whether SIPs "work." How should investors evaluate SIP performance during such phases, and why might continuing- or even stepping up- SIPs in flat markets matter most for long-term wealth building?

Ans: It is true that markets have been flat for the last couple of years now. This is par for the course in equity markets, where return expectations can’t be linear. Even at current levels, 3 year CAGRs look healthy. Therefore, retail investors should continue building their portfolios via SIPs. Investors who had continued their SIP discipline would be now sitting on a strong base of investments made at same level of NAVs for 2 years. When the markets restart their upward journey, the strong base of 2 years’ worth of investments will stand them in good stead.

Q4. Investors often evaluate active funds based on historical returns, but metrics such as active share can provide insight into how differentiated a portfolio is from its benchmark. How should investors interpret active share, and what role should it play when selecting active equity funds?

Ans: Investors in actively managed mutual funds do so with an expectation to outperform the benchmark indices. Therefore, there is an implicit expectation that the fund manager actively positions his/her portfolio in a manner to stand apart from the index. Active share is a measure of degree to which a portfolio stands apart from its benchmark. A higher active share therefore is an indication that the portfolio is more actively managed in the sense of it being materially different from the benchmark. However, there are nuances- one, standing apart from benchmark by itself is no guarantee that the returns will be “better” than the benchmark. It only ensures that the returns will be “different” from the benchmark. The onus of outperformance boils down to stock selection, even in portfolios with high active share. Second – there are times in market when a portfolio manager might want to reduce the benchmark risk in portfolio and reduce active share. In such cases the lower active share number is a deliberate call that the FM is taking. Therefore, “higher the better” is not always true when it comes to active share.

Q5. The recent concerns surrounding Rajesh Exports have highlighted how governance and disclosure-related issues can emerge even in well-known listed companies. What are some of the key warning signs that you look for when assessing management quality and financial reporting standards?

Ans: At SBI Mutual Fund, we have a robust forensic accounting framework that tracks multiple metrics over a long period of time. This framework also benchmarks these metrics vs other listed companies. So at any given point in time, we have a view on the accounting quality of any listed security and we know about the key red flags, if any. This is a broad and deep subject and a short answer will not do justice.

Q6. With markets volatile and range-bound, SIF strategies- particularly long-short and hedged approaches- are facing their first real test in Indian conditions. How have these strategies navigated the current phase, and does a sideways market actually make the strongest case for their inclusion in portfolios?

Ans: SIFs have been relatively new investment vehicles, and we believe the performance of such schemes needs to be assessed once we have a little longer time horizon of performance track record. Having said that, the long-short and hedged strategies are designed to generate positive returns in all market conditions and therefore they make a case for inclusion in investor’s portfolio when the markets trend sideways or downwards as well.

Source: Internal Research
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Mr. Prashant Pimple

Chief Investment Officer - Fixed Income, Baroda BNP Paribas Mutual Fund.

Mr. Pimple is a seasoned asset management professional with rich experience of over 26 years in Fixed Income segment. Currently, Mr. Prashant is the Chief Investment Officer – Fixed Income at Baroda BNP Paribas Asset Management India Pvt Ltd. Prior to this, he worked with Nippon India Mutual Fund for over 16 years as Senior Fund Manager Fixed Income. Other organizations that Prashant has worked with are Fidelity Fund Management, ICICI Bank, Bank of Bahrain and Kuwait, Saraswat Co-op bank and Small Industrial Development Bank of India. Mr. Pimple is a Commerce Graduate from Sydenham College of Commerce and Economics and has completed his MBA from Jamnalal Bajaj Institute of Management Studies (JBIMS). Additionally, he has also done ACTM, Chartered Treasury Manager course specializing in Treasury and Forex Management from The Institute of Chartered Financial Analyst of India.

Please note we have published the answers as it is received from the Fund Manager of Baroda BNP Paribas Mutual Fund.

Q1. In uncertain global environments, debt often becomes an important stabilizer within portfolios. How should investors think about debt allocation not merely as a return-generating asset, but as a tool for capital preservation, liquidity management, and portfolio balance?

Ans: Stability and visibility remain one of the key important reason for investing in debt funds. One should invest in debt funds as part of; a) overall portfolio allocation seeking achievement of near-term needs b) from liquidity perspective to achieve portfolio rebalancing if one wants to diversify into other asset classes and c) at the same time generating inflation adjusting real returns.

Q2. Many retail investors still compare debt funds directly with fixed deposits on return expectations alone. What are the key advantages debt mutual funds can offer over traditional deposits from a portfolio construction and liquidity perspective?

Ans: Debt mutual funds provide diversification, liquidity and tax efficiency as compared to many traditional products in their endeavor to achieve near term needs. Any debt fund comprises various exposures to highly rated money market instruments/bonds/sovereign paper subject to exposure limits within SEBI defined framework for single issuers, sector, group limits. This ensures that debt funds are well diversified. In addition, debt funds provide flexibility in terms of liquidity, across one’s investment journey. Debt funds can be redeemed even with a partial amount without affecting returns of the residual amount which remains invested. Also, liquidity norms by SEBI ensure requisite compulsory allocation to cash and sovereign assets in the portfolio. In case of debt funds, benefits of taxation at the time of withdrawal ensure better compounding impact over medium term.

Q3. With SEBI having defined so many debt fund categories, investors often find it confusing to choose the right one. How would you simply explain which debt fund category suits which investor need - by horizon, risk appetite, and need?

Ans: SEBI definition of debt fund categories was introduced to clearly define the investment framework within which debt fund managers can manage the fund and also to ensure transparency to match investor’s expectations. Unfortunately, various categories available create confusion for broad investors in terms of purpose and expectations. The simple thumb rule for any investor should be to match the investment horizon of its investment with the duration range of the various debt funds defined by regulator. In addition, investors should look at the credit profile of the underlying debt funds as well, as although higher credit quality ensures principal protection, but it comes at a slightly lower yield. So, based on the investment objective and horizon, one can decide its risk appetite and accordingly allocate to the appropriate fund.

Q4. Credit events in the past have made investors more conscious about risk within debt products. Beyond external ratings, what should investors evaluate while selecting debt funds to ensure alignment with their risk appetite and investment horizon?

Ans: The one good part of the past credit events is that the regulator has ensured tightening of framework within which issuers as well investors can transact. In addition to these tighter regulations, an investor should be aware of the credit process of the fund house, internal guard rails within which the investments are managed, the investment horizon and needs to be achieved for investing in those funds etc.

Q5. With recent volatility in crude oil prices and concerns around inflation resurfacing amid global geopolitical tensions, how do you see the outlook for interest rates and bond yields evolving in India?

Ans: Geopolitical tensions, higher commodities in general and oil prices in particular and depreciating currency has resulted in deterioration of outlook of inflation, CAD, BOP and Fiscal Deficit. The year going forward seems to be a year for carry trades instead of large capital gains. Realizing the same, funds at shorter end which run accrual strategies looks attractive as spreads remain higher than long term average over repo rate.

Q6. With the rupee influenced by factors such as oil prices, trade deficits, and global uncertainty, how important is currency stability for India’s broader macroeconomic outlook over the medium term?

Ans: A stable currency is of utmost importance as it not only affects inflation trajectory, trade deficits and fiscal deficits, but also affects capital allocation decisions from FPIs and FDI perspective. If the Indian rupee continues to reflect depreciation bias, we may get into vicious cycle of higher inflation, higher CAD, higher BOP, lack of flows and continue to remain underinvested from capital allocator versus rest of the emerging markets. This could undermine the medium-term growth trajectory and can lead to higher and longer inflation regime. Hence a stable currency remains a key important essential which policy makers would be keen to adhere to.

Disclaimers The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but Baroda BNP Paribas Asset Management India Private Limited (BBNPP), makes no representation that it is accurate or complete. BBNPP has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as ‘will’, ‘would’, etc., and similar expressions or variations of such expressions may constitute forward-looking statements. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BBNPP undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. Words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advice. This information is not intended to be an offer to see or a solicitation for the purchase or sale of any financial product or instrument. The investment strategy stated above is for illustration purposes only and may or may not be suitable for all investors. The information should not be construed as investment advice and investors are requested to consult their investment advisor and arrive at an informed decision before making any investments. The Trustee, AMC, Mutual Fund, their directors, officers, or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document. Past performance may or may not be sustained in the future and is not a guarantee of any future returns.

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

Mr. Sanjay Chawla

Chief Investment Officer - Equity, Baroda BNP Paribas Mutual Fund.

Mr. Chawla has over 35 years of experience in fund management, equity research and Management Consultancy. Currently, he is Chief Investment Officer - Equity at Baroda BNP Paribas Asset Management India Private Limited. In his prior roles, he has worked with Baroda Asset Management India Limited as Chief Investment officer, Birla SunLife AMC as Sr. Fund Manager-Equity, managing various schemes with different strategies. Mr. Chawla has also worked as Head of Research with SBI Capital Markets and in various capacities in the equity research space in Motilal Oswal Securities, IDBI Capital Markets, SMIFS Securities, IIT Invest Trust & Lloyds Securities. He is the fund manager for certain schemes of the Mutual Fund. Mr. Chawla is graduated with a Master of Management Studies from Birla Institute of Technology & Science (BITS), Pilani.

Please note we have published the answers as it is received from the Fund Manager of Baroda BNP Paribas Mutual Fund.

Q1. Following the recent government commentary around fuel conservation, gold imports, and external vulnerabilities, do you believe long-term investors should be concerned about the broader macroeconomic impact, or are these measures largely preventive steps reflecting prudent economic management?

Ans: In our view, the recent government commentary around fuel conservation, gold imports etc is more of a groundwork towards the possibility of an extended resolution to the West Asia conflict. As the conflict lingers and the disruptions in the Straits of Hormuz continues, crude/gas/petrochemical prices remain elevated. This is likely to place a downward pressure on GDP growth, an upward bias on inflation and a worsening current account deficit (CAD) placing pressure on the currency. It makes the situation for maintaining fuel prices less and less tenable. For long term investors, the currency and bond markets (OIS markets are tentatively pricing in 50bps rate increases by the close of FY27) have already recalibrated to a large degree. Equity has seen a small bounce from the lows of March when peace talks began and market may give up those rebound gains in case a truce is delayed. However, our health as an economy as we entered into this conflict is vastly different from say the global financial crisis years or the tech meltdown years. Valuations euphoria had already drained through CY2025 and our valuations have now reverted to mildly below long term levels. FII ownership is also at a multi-year low indicating no extended ownership. Retail leverage/margin financing etc have also been manageable. Yes, growth may be vulnerable and one could see 300-500bps of earnings cuts, but it would not be meaningfully large as an extension to impact on markets. This crisis may actually be a reasonable window for long term investors to get into markets. A resolution of the conflict would naturally translate to cool off in energy markets in 1-2 quarters, changing not only sentiments but also reducing the CAD and relieving the risks to growth and inflation.

Q2. Beyond financial metrics, how do you assess the qualitative aspects of a company while filtering stocks for long-term portfolios? What are the early signs that help you differentiate sustainable compounders from businesses benefiting only from short-term cycles?

Ans: We look at a triangulation of BMV - business, management and valuation to identify long term winners. A company’s ability to weather shocks and sustain its growth can stem from multiple sources - a technology proficiency, large scale driving competitiveness, ability to leverage on raw materials (e.g. access to high grade alumina for an aluminium producer) or labour costs (certain labour-intensive jobs may be more competitive out of India) etc. The other part M - management is where we desire consistency between statements and action, proper timely execution of articulated strategy with a high level of governance and lastly the V - valuation i.e. there has to be a relation between price (we pay) and the value (we get).

Q3. Smart beta strategies are gaining ground as investors seek a middle path between passive and active investing. How do you view the growth of smart beta in India, and can factor-based strategies consistently add value across market cycles compared to traditional active and passive approaches?

Ans: These are interesting alternatives to broaden the choices available to investors. Some of these categories are quite nascent so one could see some build-up of assets in the near future. However, they have their own pros and cons. On the positive side, they may be a little cheaper and also they do eliminate some human biases. On the negative side, typical strategies like momentum or quality etc. do not work across all time frames and it may be more appropriate for an astute investor to keep shuffling across such styles. A less involved investor may prefer a professional to take the calls through active management. Long term investors may also find it cumbersome to constantly shuffle styles and suffer tax leakages if their intent is to reap benefits of long-term investing.

Q4. With the launch of multiple strategies in the newly introduced SIF space, how should investors understand the role of these products within their portfolios? What type of investors are best suited for SIF strategies, and how different are they from traditional mutual fund offerings?

Ans: The SIFs are a new category of mutual fund strategies that are available to investors within the broader MF platform. The investment strategies of the funds utilize the same asset classes and securities as traditional mutual funds - Equity, Fixed Income, Commodities, InVITs, etc. The key differentiator being the manner in which these varied asset classes and instruments ( including derivatives) are used to run the investment strategy for these funds. Investors should evaluate their risk appetite, map out their investment and financial needs and then consider investment choices that would help them achieve these needs. The SIFs tend to run relatively more complex strategies than mutual fund schemes, and for many of the strategies, may have higher risk portfolios. Therefore, investors would be well guided to choose funds based on their risk appetite and evaluate individual SIF strategies for their suitability in their portfolio.

Q5. Many investors struggle with asset allocation discipline during bull and bear cycles. How should investors decide when to rebalance equity exposure rather than reacting emotionally to market movements? What indicators or life-stage factors should ideally drive such decisions?

Ans: Investors should stick to their asset allocations that have been created based on their risk appetite, time horizon and investment needs. Bull and Bear cycles are a normal part of the capital markets and difficult to predict and therefore even more difficult to time investments in accordance with these cycles. We believe investors should review their portfolios on a regular basis and re-balance only if required, based on their needs and risk appetites. It is difficult, but investors should actively try to ignore relatively short-term market movements and stay disciplined and focused on their needs.

Q6. While digital platforms have made investing more accessible, data indicates that investors working with MFDs tend to stay invested longer through market cycles. Do you believe the role of distributors is evolving from product distribution toward behavioural coaching and financial discipline?

Ans: Mutual Fund Distributors are an integral part of the Mutual Fund ecosystem. Financial decisions for most of the populace are a daunting and esoteric activity and therefore most investors require handholding for both the actual investment decisions as well as guidance through the process of executing those investment decisions. As the market grows, evolves and matures, we see distributors playing more active roles in their investors’ investment life cycles. The resilience of SIPs and Mutual Fund flows despite market volatility has clearly shown that the increasing education and emphasis on disciplined investing, staying the course through market cycles and aligning asset allocation to risk appetites is beginning to make an impact on the broader investing population. MFDs have been instrumental in this growth and understanding of investments.

Source: Internal Research
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Mr. Puneet Pal

Head - Fixed Income, PGIM Mutual Fund.

Puneet Pal is the Head-Fixed Income of PGIM India Asset Management Pvt. Ltd. He has over 23+ years of experience in the debt markets within the mutual fund space.

In his last assignment, Puneet was Head - Fixed Income at BNP Paribas Asset Management India Pvt. Ltd. Prior to that Puneet was Sr. Vice President & Fund Manager at UTI Asset Management Company Ltd. He has also worked as Fund Manager at Tata Asset Management Ltd. He is a MBA (Finance) from Symbiosis Institute of Business Management, Pune.

He jointly manages PGIM India Money Market Fund, PGIM India CRISIL IBX Gilt Index – Apr 2028 Fund, PGIM India Ultra Short Duration Fund, PGIM India Liquid Fund, PGIM India Low Duration Fund, PGIM India Corporate Bond Fund, PGIM India Dynamic Bond Fund and PGIM India Gilt Fund and debt portion of certain equity funds.

Please note we have published the answers as it is received from the Fund Manager of PGIM Mutual Fund.

Q1. With crude oil prices remaining volatile and the RBI maintaining a cautious stance on rates, how do you see the interest rate trajectory evolving in India? What is your broad positioning on duration and the yield curve in this environment?

Ans: The duration and the extent of the Middle East conflict will be a key determinant of the Inflation and the growth outlook for FY27. Though the Inflation outlook has worsened markedly, we do not expect a rate hike by the MPC in next week’s policy meeting as the current lower Inflation buys some time for the MPC to wait and gauge the impact of the rapidly evolving situation. We expect RBI to sound hawkish with a decent probability of a change in the monetary policy stance, signalling the end of the rate cutting cycle.

Q2. In this uncertain rate environment, how do you decide the balance between accrual and duration strategies within your portfolio? What key triggers or indicators lead you to shift between the two?

Ans: The choice of accrual and duration strategies depend upon various variables , primarily our outlook on the markets and the relative valuations. Our view of the interest rate trajectory is the key trigger for choosing between accrual and duration strategies.

Q3. Debt is often under-appreciated in portfolio construction despite its role in managing risk and providing stability. How should investors determine the appropriate allocation to debt over the long term, and what frameworks or factors should guide this decision?

Ans: Diversification is essential to mitigate risk. An equity-heavy portfolio will suffer a huge drawdown when markets correct. On the other hand, a portfolio having an optimal balance between equity and debt could protect the downside better. As part of the asset allocation process, investors should invest across different asset classes to cut down risk and achieve an optimal balance between risk and reward.

Q4. Liquid funds offer relatively attractive risk-adjusted returns, yet retail participation remains limited. What are the key factors-such as awareness, liquidity perception, or behavioural biases-that are restricting broader adoption, and what could drive a structural shift in investor allocation?

Ans: Lack of awareness , we believe , is the major factor for lower retail participation in Liquid fund and money market categories. More information and educating investors about asset allocation and financial literacy can drive a shift in investor allocation

Q5. Online bond platforms are increasingly attracting retail investors by offering higher-yield opportunities. How do you assess the risk-return trade-off in such instruments, and what key factors should investors evaluate before investing?

Ans: The risk return is adversely skewed for investors investing on such platforms as an individual investor may not be in a position to handle a negative credit event. We believe that investors are better off investing through institutional investment vehicles such as credit funds offered by mutual funds.

If investors want to invest in bonds through online bond platforms , then they should do proper credit evaluation and due diligence in respect of the bonds they are investing in and should also be aware of the operating mechanics of the high yield bond markets.

Q6. External credit ratings may not always capture early signs of stress. What additional internal checks or early warning indicators does your team use when assessing creditworthiness, and how do these help in protecting investor capital?

Ans: Credit Research is an important part of our investment process. We start with a bottom-up process to create an investible universe. Potential opportunities are first subjected to screening to establish a baseline on financials and corporate governance standards. The filtered issuers are then subjected to more rigorous evaluation standards covering both quantitative and qualitative factors. The process includes an internal credit rating and scoring framework as an input for decision making to complement the external rating. Each issue is subject to ongoing review as long as they are part of the investable universe.

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

Mr. Vinay Paharia

Chief Investment Officer - Equity, PGIM Mutual Fund.

Vinay Paharia joined PGIM India AMC in January 2023 and is currently the Chief Investment Officer at PGIM India Mutual Fund. He has over 22 years of experience in equity market and fund management. He holds M.M.S, BCom and CFA (ICFAI) degrees. Vinay has been a growth investor and has followed a consistent investment philosophy of buying good quality and high growth companies at a reasonable price. This strategy has been an evergreen framework and has outperformed markets most of the times (but not all the time).  His objective is to buy companies that are available at a price that may be slightly lower than the underlying fair value, which presents a greater potential upside over a five-year period. Vinay vouches for a disciplined, evidence-based investment approach over chasing short-term returns.

Please note we have published the answers as it is received from the Fund Manager of PGIM Mutual Fund.

Q1. With India’s valuation premium over other emerging markets moderating and GDP growth expected to remain strong (~6.8% in FY27), how do you assess the current risk-reward for long-term equity investors? Within this backdrop, which segments-large caps, mid caps, or small caps-appear relatively better positioned today from a valuation and earnings growth perspective?

Ans: Last few months have been a macro stress test - combining oil shock, capital outflows, currency pressures, AI related growth pangs and growth downgrades in a short span. However, we believe, many of these being transitory and would resolve itself with passage of time, timelines however are uncertain. More importantly, the above has resulted in a meaningful correction in the markets and much of the froth in valuations which was built has been taken away which is being reflected in the price. Largecaps and Smallcaps are now trading very close to their longer term averages in terms of valuation and risk-reward is much more balanced than before. However, Midcaps are still trading at moderately rich valuations and are hence less preferred compared to large caps and small caps. We believe, it is a good time to increase allocation to Indian equities. It is important to remember that timing is very difficult and investing when risk-reward is favorable is likely to be more fruitful. More importantly, the risk-reward is highly favorable for high growth and good quality business, wherein valuation as well as earnings growth both are in favor for long term investing.

Q2. With passive AUM continuing to rise in India, where do you believe active management can still consistently generate alpha? Are there specific market segments or conditions-such as higher dispersion or volatility-where active strategies have a clear edge over passive?

Ans: Active management's fundamental premise remains robust: markets are not completely efficient, and skilled managers can exploit these inefficiencies to generate risk-adjusted returns above benchmark indices. The strengths of active investing include:

1. Alpha Generation Potential: Skilled active managers can capitalize on market inefficiencies, behavioural biases, and information asymmetries that passive strategies cannot exploit. During periods of significant market stress or structural changes, active managers can potentially protect capital and identify opportunities thereby generating alpha.

2. Risk Management Flexibility: Active managers possess the ability to adjust portfolio risk dynamically, reducing exposure during periods of heightened volatility or when valuations appear stretched. This tactical flexibility can be particularly valuable during market transitions that indices cannot anticipate.

3. Access to Unique Opportunities: Active strategies can invest in securities or sectors before they enter major indices, potentially capturing returns during the inclusion process. They can also avoid or underweight deteriorating companies that indices must hold until they are removed.

We expect polarized performance from the markets. We expect high growth and high quality buckets to outperform while the low growth/quality bucket to underperform and give away the excesses which were built in FY24. Passive investing means there is some degree of exposure to low growth and low quality stocks as they make up a significant portion of Indexes. Active investing ensures conviction and exposure largely to high growth and high quality stocks.

Q3. As we approach the upcoming earnings season, what is your outlook on corporate earnings growth? Which sectors or themes are likely to drive the next phase of market performance, and where do you see the key downside risks?

Ans: We think we are once again likely to witness an earnings impact like that in the pandemic period. In March 2020 to June 2020 quarter (the first quarter of pandemic), we witnessed massive cuts in Nifty 50 Index 1-year forward earnings expectation, from a growth in double digits (in line with historical performance) to an almost 15% decline. However, once again, this is only likely to be transient (like the pandemic) and not structural. Hence we do not expect a material long term structural impact on the macroeconomic environment. The actual earnings compounded at 15% per annum from March 2020 to March 2026, highlighting the transient impact of the pandemic. We feel the longer term earnings trajectory is unlikely to be impacted even this time, with only a short term transient impact likely due to the current geo political environment. Even a massive cut in short-term earnings can only have a small impact on overall Fair Values of companies. This is because equities are growing annuities valued till perpetuity.

Overall fabric of the market constructive for growth + quality investing for the long term. Preferred sector plays are more domestic oriented – Consumption, Domestic financials, India Healthcare, Telecom. Cautious/Negative on I.T, deep cyclicals, Energy and Utilities

Q4. SIP inflows have remained resilient, touching record highs even during volatile phases. Do you see this as a structural shift in investor behaviour? During market corrections, would you advise investors to maintain, increase, or rebalance SIP allocations-and what factors should guide that decision?

Ans: Investment decisions are shaped not only by returns or market data, but also by individual behaviour. Risk tolerance, time horizon, and emotional responses play a significant role in how investors act, especially during volatile markets. We advise investors to maintain staggered investments for all segments of the market.

Periods of geopolitical uncertainty, such as the conflict unfolding today, often lead to higher market volatility and heightened investor reactions. It is common for investors to consider redeeming investments prematurely, trying to time the market, or pausing allocation decisions altogether. While these responses are natural, history shows that emotionally driven decisions

often work against long-term financial goals. Our internal study of Nifty 500 TRI shows that investors who stayed invested 04-Sep-2001 to 31-Dec-2025) during this period, earned 17.33% return while investors who missed the best 20 days ended up earning just 11.06%. This means that investor who stayed invested, (assuming a lumpsum investment of 1 lakh), made Rs 48.77 lakh at the end of 24.32 years. The investor who missed 20 days accumulated Rs 12.82 lakh, a difference of (Rs-35.95 lakh).

Q5. Many investors chase recent outperformers, especially in mid- and small-cap funds, often misaligning with their true risk appetite. What framework would you recommend for selecting equity funds and ensuring portfolios remain aligned with risk tolerance? How can investors stay disciplined through market cycles?

Ans: We have been strong proponents of Growth Investing in India. Our definition of Growth Investing is as follows:

"Investing in a well-diversified portfolio of companies that demonstrate above average growth in business, while generating above average return on equity, purchased at a reasonable price"

Growth investing is all about buying good businesses at fair price. Returns for growth investors are largely driven by earnings growth. Growth investors do not bet on valuation re-rating, but on fair value growth. India is one of the fastest growing large economies in the world. Thus, we have a higher probability of finding superior growth companies in India. We have a large number of companies generating higher than their cost of equity, thereby creating superior shareholder value. We have also witnessed IPOs of a large number of good quality and high growth new age businesses in Indian bourses. Indian companies on average have generated a healthy return on equity (RoE) while growing at a reasonable pace. Over the Long term (two decade) average RoE generated by Top 500 companies in India is 15%. Similarly, long term average sales growth has been 12% for the same set.

We tend to be overweight on the Consumer Discretionary and Healthcare Sectors, as the stocks within these sectors align with our investment philosophy.

Q6. What are the non-negotiable factors your team looks for when selecting stocks? Specifically, how do you evaluate management quality and governance to ensure businesses can sustain performance across cycles?

Ans: Our framework excludes low-growth and low-quality stocks, and it is applicable on all sectors.

Our evaluation of management quality is in conjunction with the quantitative measures stated above and promoter background checks, as well as internal risk triggers. We also take a holistic view from the Fixed Income Team on rating wherever applicable and relevant

Source: Internal Research

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Mr. Venugopal Manghat

Chief Investment Officer - Equity, HSBC Mutual Fund.

Venugopal Manghat is the Chief Investment Officer (CIO) - Equity of HSBC Mutual Fund. Venugopal was previously Head - Equity Investments, L&T Investment Management Limited from May 2016 to Nov 2022 and was Co-Head - Equity Investments, L&T Investment Management Limited from Apr 2012 - Apr 2016. Prior to 2012, he was Co-Head - Equities, Tata Asset Management Limited, India from 1995 - 2012. His educational qualification is MBA Finance, B.SC.

Please note we have published the answers as it is received from the Fund Manager of HSBC Mutual Fund.

Q1. Recent geopolitical tensions in the Middle East have once again raised concerns around global market volatility. From the perspective of Indian equities, do such events generally result in only short-term market disruptions, or can they have any lasting implications for the long-term outlook of the Indian economy and markets?

Ans:1 Indian markets have historically "climbed the wall of worry" through a wide range of internal and external concerns such as wars, commodity spikes, tech bubble, Global Financial Crisis, and Covid. Such events often result in market corrections in the near term, but markets recover as fundamentals reassert themselves.

Importantly, periods like these tend to separate the 'wheat from the chaff'. High-quality companies, i.e., those with strong balance sheets, disciplined capital allocation, resilient business models, and credible management teams, often use volatility to consolidate market share, strengthen stakeholder relationships, and emerge in a better competitive position once conditions normalise.

From a longer-term perspective, we believe India is better placed today to absorb external shocks than it was in prior cycles. Over the past decade-plus, a series of reforms and institutional strengthening across sectors has helped build a more durable foundation.

So, while near-term market moves can be sharp and sentiment-driven, we don't see such episodes, by themselves, changing the long-term trajectory of the Indian economy or the structural trend in equities.

Q2. After a prolonged phase of FII outflows, February witnessed the highest foreign inflows into Indian equities in nearly 17 months. Do you believe this signals a more sustained improvement in global investor sentiment toward India, or could such inflows remain intermittent in the near term?

Ans:2 Foreign investor positioning in India is typically driven by a combination of India-specific fundamentals and the broader global/emerging market opportunity set.

A key reason India saw meaningful outflows over the past year was the global concentration of returns in the AI theme. Markets such as US, Taiwan, Korea and parts of China have a larger share of direct AI beneficiaries, whereas India has fewer "pure-play" AI winners in the listed space. Currency dynamics also mattered. At the same time, India's earnings growth expectations softened versus its long-term trend.

Looking ahead, consensus expects earnings to re-accelerate to mid-teens growth in FY27E from single-digit growth over past two years. Valuations have also become more reasonable with India's valuation premium to MSCI EM moderating closer to long-term averages. Finally, FII positioning is light with India's active weight relative to the EM index near multi-decade lows. All these can create durable improvement in positioning with strong incremental inflows.

Net-net, while February's strong inflows are encouraging, we'd expect the near-term pattern to remain somewhat stop-start, with flows reacting to global risk appetite, geopolitics, US dollar, and relative performance across markets. We expect FII positioning to improve over the medium term.

Q3. The IT sector has witnessed a sharp correction recently, with the index declining by nearly 20%, partly driven by concerns around evolving technologies such as artificial intelligence and their potential impact on traditional IT services. From a long-term perspective, how do you evaluate these developments and the future growth prospects of the Indian IT sector?

Ans:3 The recent correction in Indian IT has been sharp with >20% drawdown during YTD2026.

From a top-down lens, the sector is facing genuine headwinds as AI systems become more capable moving from "assistive" tools to autonomous agents. This uncertainty is likely to stay elevated over the next few quarters as technology and adoption curve evolves quickly. However, the bottom-up picture is more balanced. Many IT companies delivered in-line to better-than-expected 3QFY26 results, with healthy deal wins and management commentary that remains broadly constructive.

Over the medium term, we see AI as both a disruptor and a growth driver. On one hand, it can compress some legacy work through automation and productivity gains. On the other, it can expand the addressable market as enterprises push into "agentification" (embedding AI agents across workflows). Though valuations have reset closer to long-term multiples, in the near term, continued developments in Agentic AI could keep sentiment and valuations subdued.

Ultimately, the key long-term question is whether AI meaningfully lowers the sector's terminal growth rate and if so, by how much. The answer to that, relative to the valuation investors are paying today, will determine whether this correction proves to be a temporary derating or a more lasting reset.

Q4. The recent regulatory changes introduced by SEBI allow equity schemes to allocate a limited portion of assets to commodities such as gold and silver through ETFs. How do you view this flexibility from a portfolio construction perspective, and do you see it meaningfully influencing diversification within equity-oriented funds?

Ans:4 SEBI's recent move to allow equity mutual funds greater flexibility permitting allocation of up to 35% to instruments such as gold and silver (via ETFs), as well as InvITs and debt broadly expands the options available to fund managers. This gives managers additional levers to manage liquidity, drawdowns and diversification, particularly during periods when equity risk premium increases.

That said, in our view, the most important principle is that an equity scheme should remain true to its stated mandate and investor expectations. For example, a small-cap fund is typically chosen to participate in India's growth story through smaller companies that can scale over time. If such a fund were to meaningfully increase exposure to gold or debt, it could dilute the very equity participation investors signed up for.

As a fund house, we maintain cash primarily to meet redemption needs and don't take large active cash calls. Similarly, while a small allocation to gold/silver ETFs or other permitted instruments can provide incremental diversification, it's unlikely in our funds to become a meaningful portion of equity portfolios.

Overall, the change is a positive, but whether it materially changes diversification within equity schemes will depend on each fund's philosophy.

Q5. Markets periodically witness events that can trigger short-term volatility. Given that such events are a recurring feature of markets, how should investors approach these phases so that they view them as opportunities rather than panic and remain focused on long-term wealth building?

Ans:5 Over the past four decades, two things have remained remarkably constant - Equities have been volatile in the short term, and they've tended to outperform most other asset classes over the long term. In the short run, every volatile event feels different and permanent, however, most have been temporary within a longer compounding journey.

The most practical way for investors to turn volatility into opportunity is to shift towards a process-oriented approach to equity investing rather than reacting to daily news flow. Use systematic investing through SIPs/ STPs and staggered deployment to help manage volatility. During such volatile periods, strong businesses with resilient balance sheets and cash flows tend to recover faster and compound better. Investors should maintain adequate liquidity so that short-term market moves don't result in forced selling and become permanent losses.

Empirical evidence suggests that some of the best long-term returns are earned by investing when sentiment is weakest. To conclude, volatility creates uncomfortable moments, but it also creates better entry points for long-term wealth building.

Q6. It is often observed that investors gravitate toward schemes that have delivered strong recent performance and may even switch funds based on short-term rankings. In your view, how should investors approach fund selection and avoid the common behavioural trap of chasing past performance?

Ans:6 Styles, sectors and market caps rotate as macro conditions change. So what worked for a fund in one phase may not work in the next. A fund that tops the charts in a momentum-led rally may lag when leadership shifts to value, quality, or defensives. If investors focus on only one element (typically recent returns) and switch schemes based on short-term rankings, the outcome is often sub-optimal.

A better approach is to evaluate whether a fund's investment philosophy and process fits the investor's needs. Practically, investors should look at:

Consistency across market cycles, rather than just short-term returns

Risk-adjusted performance and not only absolute performance

Portfolio construction discipline (diversification, concentration, turnover)

Fund house and portfolio manager process (stability in investment approach)

Costs and tax efficiency

In short, investors are better served by choosing funds with a clear, well-executed process aligned to their needs and then giving that process time to work rather than switching based on recent rankings.

Source: Internal Research

Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Mr. Shriram R.

Chief Investment Officer - Fixed Income, HSBC Mutual Fund.

Mr. Shriram R.,CIO - Fixed Income, overseeing the management of about INR40,000cr (~USD 8bn), in assets across various Fixed income and Hybrid funds (INR only). He has been in the Asset Management business since 2001 and has over 22 years of experience in fixed income markets. Prior to joining HSBC Asset Management, he was Head of Fixed Income at L&T Investment Management Limited (2012-2022). From 2010-2012, he was Portfolio Manager at Fidelity (FIL) Fund Management managing their India domiciled INR FI funds. From 2005-2009, Shriram was based in Hong Kong at ING Investment Management Asia Pacific, where he managed multi currency portfolios as Senior portfolio Manager, Global EMD (Asia) - co-managing the Asian portion of Emerging Market Debt funds, with focus on sovereign HC and LC rates/ FX, as well as pure Asia local currency funds / mandates. His earlier assignments were with ING Investment Management India as Fixed Income Fund Manager, Zurich Asset Management Company in fixed income research and with the Treasury department of ICICI Ltd, where he started his career in investments in 2000. Shriram is a Chartered Financial Analyst and holds a Post Graduate Diploma in Business Management from XLRI Jamshedpur and an Engineering degree from the University of Mumbai.

Please note we have published the answers as it is received from the Fund Manager of HSBC Mutual Fund.

Q1. Debt is considered an important component of asset allocation. From a long-term portfolio perspective, how should investors think about the role of debt funds in balancing risk and stability within their overall investment strategy?

Ans:1 Debt funds play an important role in any investor's portfolio asset allocation. They tend to be relatively less volatile and may have the ability to generate potential returns depending on debt funds have acted as an alternate for the traditional FDs. volatility. Depending on the investor's risk taking ability, need for liquidity and investment time horizon, volatility range of debt funds of

varying risk - return profile from which to choose from.

Q2. Global interest-rate movements, particularly those of the US Federal Reserve, often influence capital flows and bond yields across emerging markets. How do you assess the potential impact of global monetary policy developments on the Indian fixed-income market?

Ans:2 Global monetary policy-especially the Fed-affects Indian fixed income mainly through US Treasury yields and global risk premia, which influence the level and shape of the G-sec and swap curves, and through capital flows into EM debt. Hence, a more hawkish global backdrop tends to tighten financial conditions via higher term premia, weaker risk appetite and a firmer USD. This eventually can increase INR hedging costs and also add to FX volatility. For rates market, it can push yields higher. The recent geopolitical developments have trickled down to rates - FX and interest rate channels - as the concerns around energy-led inflation pressures could imply delayed or no rate cuts by the US Fed, which was not the case until before the West Asia war.

Having said that, the surge in yields in EM's incl. India has been far lower than that observed in the AE's - as EM's fiscal, debt and inflation indicators are better placed than many AE's. Hence, even as the nominal interest rate differentials are lower, narrower than the past, the real differentials are still better. Therefore, even as the global policy tightens, esp. of the US Fed, the implications on Indian debt markets is likely to be contained; benefiting from strong macro fundamentals such as that of near-target inflation, continued fiscal consolidation and decent growth momentum. The duration of the Middle East crisis could turn out to be a spanner in the wheel as uncertainty leads to higher risk premia, globally. As a net energy importer, we could see spillover effects through the FX channel which could then permeate into external, inflation and fiscal risks. At this juncture, inflation and fiscal risks are still contained with external sector far more exposed.

Q3. India's corporate bond market has been gradually evolving, with increasing participation from institutional investors and improving regulatory frameworks. How do you see the development of the corporate bond market shaping opportunities for debt mutual funds over the long term?

Ans:3 Corporate Bond market has been gradually evolving over the years. Various reforms by SEBI, CCIL and RBI which include online Government securities and bond platforms, RFQ trading, and tri-party repos, have boosted liquidity. Corporate issuances hit record highs in FY25, fueled by RBI rate cuts and infrastructure needs, with projections to exceed ₹100-120 trillion by 2030. Outstanding bonds grew at a 12% CAGR over the past decade, rivaling bank credit mobilization. With the continued awareness of the bond market and proper categorization of the debt funds (as per the investment horizon of an investor), debt funds have acted as an alternate for the traditional products. With more participation from the institutional and retail investor, bond market has become more liquid thus reducing the liquidity risk.

Q4. In a credit market where external ratings may lag real developments, what does your in-house credit evaluation framework look like - and how do you assess a company's true debt-servicing ability?

Ans:4 We have our own internal rating framework/scale and limits for long- term (AAA to BBB) and short-term instruments (ST1 highest to ST5 lowest), driven primarily by standalone credit strength. The assessment centers on long-term debt-servicing capacity, factoring in business cyclicality (where relevant) and foreseeable events that may drive material cash outflows/inflows (e.g., M&A, capex). Our structured rating review covers business and financial fundamentals, forecasts and stress tests, promoter track record, mutual fund exposure, rating sensitivities, rating history, and discussions with management and rating agencies-supported by internal governance and sanctions screening.

Following unexpected negative events, the first priority is to evaluate liquidity, funding buffers, and financial flexibility available with the issuer to absorb short-term stress before making internal rating changes. Where risks are severe and persistent, the rating is immediately moved to sell or are placed on hold and incremental investments are paused until the hold is lifted. When warranted, internal ratings are upgraded or downgraded promptly, without waiting for external rating actions, to provide timely investment guidance to the trading desk. Ongoing monitoring is maintained through quarterly results, early warning indicators, external rating updates, and other material developments.

Q5. Given the wide range of debt fund categories available today, how should investors align their investment horizon and risk tolerance with the appropriate type of debt fund?

Ans:5 Investors should align their investment horizon according to their risk-taking ability and also the duration of the investment. For all the debt funds, risk matrix has been defined by SEBI which considers credit risk and interest rate risk. Risk averse investors should look for debt funds which invest in high rated securities and also lower maturity thus less sensitivity for interest rate risk. Given that we are close to the bottom of interest rate cycle, we believe it would be better for investors to keep duration risks low for the next 6-12 months.

Q6. SEBI has recently introduced sectoral debt funds. How do you interpret the role of this category within a fixed income portfolio, and what type of investors should ideally consider such strategies?

Ans:6 Sectoral debt funds (as a SEBI category) are best seen as a 'satellite' allocation within fixed income-not a core holding. They concentrate credit exposure in sector 1-2 (e.g., Financial Services, Energy, Infrastructure, Housing, Real Estate), so the portfolio's outcome is driven less by broad rate moves and more by sector-specific credit cycles, regulation, liquidity, and refinancing conditions. Investors who are having a basic understanding of the sector's business model, can tolerate sector concentration risk, and are using it as a satellite allocation through such concentrated products.

Source: Bloomberg, HSBC Mutual Fund, Latest available data as on 18 March 2026 unless otherwise mentioned

Past performance may or may not be sustained in future and is not a guarantee of any future returns.

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

Mr. Dhawal Dalal

President & Chief Investment Officer - Fixed Income, Edelweiss Mutual Fund.

Mr. Dhawal Dalal has 20 years of experience and an MBA from University of Dallas (USA). Mr. Dhawal has joined Edelweiss Asset Management Limited in the year 2016. He is responsible for the overall growth of fixed income assets through a healthy mix of retail and institutional clients. Before joining Edelweiss Asset Management Limited, he was the head of Fixed Income at DSP Black Rock Investment Managers Private Limited and led a team of Fund Managers managing fixed income assets. His role there was to expedite overall growth of fixed income assets, performance and client interactions.

When not occupied with work, he loves reading on emerging trends in the global markets, geo-political developments and books on behavioral trends. He’s also a movie buff and never misses a chance to watch a blockbuster with his near and dear ones. A humble and learned person, he strongly believes that every individual should have a sense of purpose in life!

Please note we have published the answers as it is received from the Fund Manager of Edelweiss Mutual Fund.

Q1. With a change in leadership at the US Federal Reserve expected around, how should global and Indian debt market investors think about continuity versus change in policy approach and market expectations?

Ans: Global financial markets are keenly awaiting the potential change in the thought process from the new Fed chair on their stance on inflation and the trade-off between AI-led productivity gains (which can lower inflation) and recent tariffs-led price gains (which may not have been fully passed through). The current Fed is perceived to be extra cautious on tariff-led uncertainties. If the new Fed chair can drive consensus on inflation trajectory to be lower, then Fed will be able to cut rates more aggressively. This will be bullish for global financial markets including Indian bond markets, in our view.

Q2. With the rupee experiencing phases of depreciation, how should debt mutual fund investors understand its impact on interest rates, inflation expectations, and fixed-income portfolio positioning?

Ans: INR’s recent depreciation is mainly due to FPI outflows and not due to any macroeconomic event. That said, the INR’s depreciation will have mild effect on our import basket amid the recent fall in crude oil while it will have a positive impact on our exports. As a result, the FY26 CAD is expected to be ~1% of the GDP, which will be within the tolerance zone even as the BoP will be in slight deficit for the second consecutive year. Overall, the recent move in the INR appears to be growth-supportive in our view and will not have any material negative impact on India’s growth-inflation dynamic, in our view.

Bond investors should, therefore, take advantage of the recent increase in bond yields in 2- to 3-year segment and lock in attractive rates with the investment horizon of at least one year as we expect the RBI to keep policy rates at current levels in CY2026.

Q3. With India’s inflation remaining well below the RBI’s medium-term target for an extended period, how should investors interpret this phase?

Ans: The recent decline in headline inflation in India has two main drivers – cyclical and structural. Cyclical drivers include above average monsoon for three years, lower crude oil prices and benign weather conditions. Together, they have contributed to lower food and energy prices which form the bulk of our inflation basket. Structural drivers include declining trend in nominal GDP growth, improvement in logistics, storage & transportation and maturing consumption patterns.

Taking all these together, we believe that India’s headline inflation is likely to experience lesser volatility as compared to the past and will likely remain in a range of 2% to 5% going forward.

Lower average inflation is relatively good for the investor in general as aggregate savings rate may improve.

Q4. Given that the FY27 fiscal deficit target is marginally lower, but gross market borrowings remain high, how do you see the net impact on long-term bond yields?

Ans: While FY27 gross borrowing is higher, the net borrowing is comparable to FY26 net borrowing. We believe that the bond market will have to reconcile this difference going forward as IGB maturities will rise every year going forward.

That said, we expect GOI’s debt to GDP ratio to gradually trend lower towards 50% by FY31 as highlighted in the new framework in the Union Budget. A lower government borrowing is always good news for the bond market. A declining trend in the government borrowing, overall improvement in fiscal health and strong & sustained economic growth in the next five years should lead to a gradual decline in bond yields barring any unexpected event risk, in our view.

Q5. Following the recent Union Budget’s increase in STT on F&O transactions, there has been discussion around its potential impact on arbitrage fund strategies. How do you assess this change, and what should investors understand about its implications for arbitrage funds?

Ans: Assuming there is no revision in the Budget proposal of revision in STT on F&O transactions, we expect a mild impact of ~30 bp on the annualized returns of arbitrage funds.

We believe that risk-reward ratio is still in favor of the investors of arbitrage funds on tax-adjusted basis as compared to other investment opportunities in the current market conditions.

Q6. What is your in-house credit research process? How do you assess a company's ability to pay, beyond just relying on external credit ratings?

Ans: Our credit assessment framework is based on multiple drivers such as analysis of key macro-economic factors, analysis of the sector followed by the analysis of the borrower.

Analysis of the macro-economic factors include analysis of the current fiscal landscape, monetary policy landscape, overall credit environment, current regulatory landscape, analysis of the banking system and overall term structure of rates

Our sector analysis includes the fiscal health of the sector, recent profitability trends, analysis of the dominant player & his pricing power, regulatory landscape pertaining to the sector, capacity utilization etc.

Analysis of the borrower includes deep dive into financial health, profitability trends, free cash flow, borrowing trends, quality of the leadership, their reputation and their business acumen, shareholding structure, trend in the market cap etc.

A thorough analysis of these factors provides us with a good understanding of the credit and the drivers of their underlying credit rating. We also continuously monitor the diversification of bond holders, recent trends in credit spreads, secondary market liquidity in bonds of the underlying credit and any material development either at the sector level or at the borrower level.

Source: Internal Research
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.