Longer duration India debt funds preferred after central bank liquidity steps, Tata AM exec says

MUMBAI, Jan 28 (Reuters) – The Indian central bank’s recent measures to boost bank liquidity provides the right opportunity for investors to shift money to longer duration funds from liquid funds, as these steps signal rate easing ahead, a Tata Asset Management executive said.

India’s 10-year benchmark bond yield dropped to its lowest level in nearly three years and was at 6.64%, after the Reserve Bank of India announced a host of measures to infuse durable liquidity in the banking system.

The 10-year yield could likely ease to 6.45%-6.50% by the end of March, according to Murthy Nagarajan, head of fixed income at Tata Asset Management. The fund house manages debt assets worth around 651 billion rupees ($7.52 billion).

Current levels on longer-term bonds are attractive to lock in investments as rate cuts will pull down yields, Nagarajan told Reuters on Tuesday.

“Investors should opt for duration products as that would be beneficial right now… They should not keep money in liquid funds as repricing (in short-term debt securities) will happen at a much lower rate,” he said.

“Investors could prefer gilt fund or corporate bond fund.”

Nagarajan expects a 25-basis-point cut in interest rates in each of the February and April policy reviews.

He also expects the RBI to announce more measures as the current ones are “not sufficient to manage the durable liquidity deficit.”

A 50 basis points cut in the cash reserve ratio that banks hold or additional bond purchases of 100 billion rupees each week from the secondary market could be options for the central bank, Nagarajan said.

The central bank bought bonds worth 101.75 billion rupees in the secondary market in week to Jan. 17.

($1 = 86.5200 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)

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