In conversation with Parijat Agrawal, Head - Fixed Income, Union Asset Management Company

Our advice to investors is to look through the volatility and stay invested in low to moderate duration funds, states Parijat Agrawal, Head - Fixed Income, Union Asset Management Company in this exclusive interview

Amid rising inflation, what kind of impact do you visualise on the bond markets and the yield curve in the next few quarters?  

Rising inflation has an adverse impact on the bond market, pushing up the yields and value of the bonds down. The yield curve is expected to remain steep as the market prices in risk premium. 

How are you positioning your debt-fund portfolios in the current market scenario?   

Sustained supply-side disruptions, marking up of margins and global spillovers have led the price pressures to sustain. Market risk has seen a quantum jump as Russia invaded Ukraine, keeping the commodity prices firm. An increasing number of central banks have commenced normalising the monetary stance, albeit at a different pace.  

In light of the above, we expect the interest rate environment to remain under pressure with elevated term spreads, accompanied by volatility due to a significant market, systemic as well as geopolitical risks, and heavy supply for a considerable period in the future. 

We shall remain defensive in our positioning and look for opportunities in the high-quality credit space.

What would be your advice to a regular income seeker with a low-risk appetite who wants to rely on mutual funds for earning decent returns? Which type of funds would be suitable for such an investor?   

Our advice to investors is to look through the volatility and stay invested in low to moderate duration funds as the higher interest accrual will meaningfully cushion the adverse impact of volatility. 

What is your take on the Union Budget 2022? How does it fare for the debt markets in the long run?  

Union Budget 2022 is expansionary and the target fiscal deficit of 6.4 per cent was higher than market expectation. The concerns of supply overhang will keep the curve under pressure.