Mr. Vikas Garg

Head of Fixed Income, Invesco Mutual Fund

Mr. Vikas Garg heads the Fixed Income investment function at Invesco India and also serves as a fund manager for various debt schemes at Invesco India. He has over 15 years of experience, of which 13 years are in the asset management industry spanning across credit research and portfolio management. In his last assignment, Vikas was working with L&T Mutual Fund as a Portfolio Manager where he was responsible for managing the Debt funds in various categories, including the high yield-oriented funds. In the past, he has worked in the credit research team with companies like FIL Fund Management Pvt. Ltd. and ICRA Ltd. Vikas holds B. Tech & M. Tech in Chemical Engineering from IIT- Delhi, PGDBM from XLRI -Jamshedpur and a CFA charter holder- USA.

Q1. Concerns about inflation and rate hikes are resurfacing on both the domestic and global fronts. Is this likely to dampen the momentum of the Indian market in the near term?

Global monetary policies outlook remains challenging as growth / inflation data continue to give mixed signals. US FOMC paused in September meeting but has kept the room open for one more rate hike in 2023 and has also guided the market for lesser rate cuts in 2024. The domestic rate environment has also become relatively more challenging with uncertainty on the global backdrop, domestic inflation concerns, elevated crude oil prices and as monsoon deficit has worsened.

While the uncertainty on various fronts has increased over the last month, we believe Monetary Policy Committee (MPC) will maintain a status quo on policy rates in October and sound watchful on inflation trajectory. Inflation is expected to cool down October onwards and provide comfort to MPC to overlook the recent spike. MPC is also expected to decouple itself from the global rate hike cycle on the back of a comfortable situation on the external front with healthy Forex reserve. Recent news on the inclusion of India in global bond indices is also expected to provide positive momentum to rates as well as the currency.

Q2. How are you looking at the bond yields trending in light of the fact that it appears that the Fed is clearly focused on inflation and jobs right now, based on the data?

Captured in Q1 and Q3.

Q3. What has been your last purchase in debt market and where are you looking to exit completely because you think the valuation, or the template is now shaky?

We have been gradually increasing our duration in funds with every correction in yields. Domestic rates have surged back to almost March 2023 levels when the backdrop was much more challenging with expected global rate hikes, India’s relatively weaker external factors, and most importantly, almost a consensus view of MPC rate hike in April 2023 policy. For instance, 10 yr G-Sec has moved up from sub 7% level seen in June 2023 to now at 7.20% - 7.25% and is very close to the 7.30% - 7.35% levels seen in March 2023. We believe, India’s current fundamental situation is much better than that in March 2023, and hence looking to buy at such levels. Net fiscal supply in 2HFY24 is expected to be much lower than that in 1HFY24 which will also support the yield levels.

Q4. In August, the rupee has weakened against the dollar. What is weighing on it?

INR has moved in line with other Emerging market currencies against the general strength in USD. Various factors are at play. US FOMC’s continued hawkish commentary on policy rates with the likelihood of “higher policy rates for longer”, substantially higher fiscal supply in the US in June to Dec 2023 period, general weakness in major trading currencies like Euro, Yen & Yuan, and specifically for INR – the recent surge in trade deficit with higher crude prices & gold import. 2HFY24 is expected to be more stable for INR as global rate hikes come to an end and India see FPI inflows triggering in with inclusion in global bond indices.

Q5. Please comment on the quality or credit rating of your primary debt funds.

Invesco India maintains a superior asset quality portfolio across all the debt schemes. Eight out of eleven open ended actively managed debt schemes have been categorised in the highest asset quality bucket A of PRC metrics, which reflects a disciplined approach on always maintaining a high-quality portfolio. This helps in ensuring a highly liquid portfolio, which is critical for maintaining a well-diversified and an optimal portfolio mix while taking into consideration the regular inflow / outflow in debt scheme.

Q6. Looking at the current scenario, what should be the investor’s strategy? What kind of a fixed income duration should they lock their money in?

With the likely peaking of domestic policy rates and the recent inclusion of India in global bond indices, we believe India’s fixed income market provides an attractive entry point to investors, especially in the 2 to 5 year duration segment, as elevated yields are expected to deliver positive returns over inflation. Near-term volatility led by evolving factors, if any, is expected to be range bound and should be ignored. Over the medium term, as the market builds expectations on the rate cut cycle at some point in time, it will enhance overall returns through mark-to-market benefit. Having said that, active fund management is critical as uncertainties may emanate from domestic inflation, fiscal supply, and global backdrop, which may influence various yield curve segments differently. Credit environment remains healthy, and selective AA / AA+ rated exposure can be explored at fair credit spreads.

Disclaimer: The Equity outlook views are expressed by Amit Ganatra, Head of Equities and Debt outlook views are expressed by Vikas Garg, Head of Fixed Income, at Invesco Asset Management (India) Private Limited. The write up is for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. It should not be construed as investment advice to any party. The views and opinions are rendered as of the date and may change without notice. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on the prevailing market conditions / various other factors and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The data used in this document is obtained by Invesco Asset Management (India) Private Limited (IAMI) from the sources that it considers reliable. While utmost care has been exercised while preparing this document, IAMI does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The readers should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

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