“Debt should be a part of investors' portfolio”
In this interview, Marzban Irani, Chief Investment Officer – Fixed Income, LIC Mutual Fund, suggests that those investors who understand the fixed-income markets should trade through platforms while the rest can use mutual funds as an investment vehicle
Could you share your outlook for the fixed-income market in FY25? What emerging trends will shape the fixed-income landscape in the coming year?
From the start of this year, the growth numbers have been strong, and inflation has been higher than the target levels of central bankers all over the world. Although market participants are anxiously waiting for rate cuts, the volatile macro data might prolong higher rates for a longer time. Besides macros, the demand supplies of central and state government securities, global investors’ participation and liquidity measures from the central bank will shape the fixed-income market.
How does LIC Mutual Fund adapt its fixed-income strategies in response to market uncertainties? And what risk management practices are you implementing to protect fixed-income portfolios in uncertain times?
At LIC MF we follow the SLR strategy of safety, liquidity, and returns. All the papers where we invest are researched and put up in the credit committee. All investments are made in a process-oriented manner. Our research team monitors the yield movement daily along with any upgrade or downgrade and any adverse news about the company in which we have invested. Our risk management team calculates liquidity ratios on a daily basis and monitors the same. Besides the executive risk committee, there is a board-level risk committee where the head of risk regularly confirms that all the things are in place.
What is your current assessment of the bond market, both globally and domestically? Are there any specific sectors or types of bonds you believe present significant opportunities right now?
The bond market outlook is positive and favourable. Lower supply compared to expectations in the domestic market and strong demand from pension funds, banks and insurance companies will help the borrowing programme to sail through. Inclusion in JP Morgan’s bond index and Bloomberg is expected to add to further demand. Going ahead, we might see the shallow rate easing. The dividend from the Reserve Bank of India and PSU banks will further strengthen the government coffers. Also, the GST numbers have been strong. Hence, fixed income provides an opportunity for investors. Globally, as the inflation numbers come within the target of central bankers, we might see rate cuts going ahead. Also, in the US, rates have gone up from close to zero to around 5 per cent. Hence, the rate cuts will be deeper.
How is LIC Mutual Fund integrating digital technologies into its fixed-income operations? What role does technology play in enhancing the efficiency and accuracy of fixed-income management?
Today, most of the G-Sec trades are on the NDS OM (Negotiated Dealing System – Order Matching) screen-based market. Also, retail investors are getting bond platforms to trade. Retail investors can use app-based facilities and trade from their screens. Most of the debt market participants are on Reuters chat where two-way quotes are displaced by OTC participants. At LIC Mutual Fund we have integrated our front office with operations through Bloomberg. Technology is helping in maintaining transparency and portfolios are uploaded every fortnight on our site for the convenience of investors.
As the CIO of fixed-income, what are your key priorities for the upcoming year? How do you ensure that your team remains agile and innovative in a rapidly changing financial landscape?
There are two things to be taken into consideration one about the credit and the other about the duration. On the credit front, we are conservative. We don’t take undue risk because if a paper defaults, the capital might get eroded permanently. However, on the duration front, we have been taking calculated risks for the reasons mentioned above.
Lastly, what advice would you give to investors looking to enter the bond market at this time? How should investors diversify their fixed-income portfolios to mitigate risk?
Debt should be a part of investors’ portfolios based on asset allocation. Investors are pampered with varying products. Those who understand the fixed-income markets should trade through platforms. The rest can use mutual funds as an investment vehicle. Peaks on bond yields have been declining. Hence, investors should lock for as long as possible to reap the benefit of higher yields. However, investors having shorter investment horizons should look at short-term debt products depending on their risk appetite.
Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.