SBI Fund Management Unlisted Shares

Interest rates will have a mild upward bias because growth is strong, along with inflation: SBI Mutual Fund

India Forbes

2 min read

India’s largest fund house with an AUM of INR 8 lakh Crores has a model currently that is positive on fixed income & negative on equities.

Justification

The Fund house usually has a benchmark model of 50:50 debt allocation, but right now the model prefers fixed income & underweight by 20% equity.
The model focuses on 3 dynamic variables namely Earnings, valuations & investor sentiment which are positive, expensive & neutral to positive respectively currently.
A/c to the company, once the retail investors start seeing rate cuts by RBI, the investors will benefit from capital appreciation along with higher yield, leading to large inflow into debt products.
Currently, RBI needs to tackle with surge in cereal & vegetable prices, a rate hike i.e ‘Mild-upward bias’ of interest rates heading to next year, being the last resort to control inflation, which is 4% above RBI’s target rate.
The yield might also rise with the expectations of India being included in the Global Bond Indices, leading to foreign portfolio flows into Indian government securities.
The US Fed, with the Japanese being the biggest investors, is likely to keep higher interest rates, but Bank of Japan’s yield curve policy is another event to watch.
- If the Bank of Japan increases yield, the money will start flowing out of US treasuries into Japanese Government Bonds, further pressurizing the yields.
SBI mutual funds says it prefers more large cap stocks compared to small cap stocks, with small caps being heterogeneous in nature.

Takeaways

The global events & RBI actions might increase flow into debt products by making the debt securities such as bonds highly attractive due to capital appreciation for investors.
The bonds are comparatively safer investments than stocks, as they provide a fixed revenue stream in the form of coupon payments.
With increased flow of capital into debt securities of the company’s portfolio will lead to overall profitability for SBI mutual funds.

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