By: Punam Sharma
After a long gap of nine months, the Reserve Bank (RBI) on 29th Jan 2013 reduced the Repo rate (short-term lending rate) by 0.25 per cent to 7.75 per cent
Cash Reserve Ratio (CRR) by 0.25% to 4 per cent releasing Rs 18,000 Cr primary liquidity into the system
– There is some near term room available for rate easing; which is being exercised currently. But the scope for overall cuts is limited given the extra-ordinary nature of the current economic cycle and the macro-economic risks attendant
– The 25 bps CRR cut infuses INR 18,000 crores of liquidity and may dilute market expectations of near term OMOs. This combined with INR 48,000 crores of bond supply due over the next 4 weeks may keep yields in a range in the near term.
There is merit in continuing to remain invested in active duration funds for the following reasons:
– In Budget fiscal deficit target is expected not in excess of 4.8%, and as indicated this year’s revised target is also likely to be within 5.3% with continued reform action from GOI, a further rate cut in March cannot be ruled out
– Demand is still far outstripping supply on the government bond curve between now and March
We continue to manage duration and asset allocation actively in our IDFC Dynamic Bond Fund, IDFC Super Saver Income Fund – Investment Plan and IDFC Super Saver Income Fund – Medium Term
The Disclosures of opinions/in house views incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alterations to this statement as may be required from time to time. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. Neither the IDFC Mutual Fund / Board of Trustee/ IDFC Asset Management Co. Pvt. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.