Mr. Murthy Nagarajan

Head - Fixed Income, Tata Asset Management

Murthy Nagarajan is the Head of Fixed Income at Tata Asset Management.

With an expertise spanning decades in the debt market, Murthy brings in a rich and valuable industry experience of more than 25 years in the financial services space.

Prior to his appointment at Tata Asset Management, Murthy was working with Quantum AMC. He was also associated with Mirae Asset Global Investment India Ltd in the Investment Department as the Head of Fixed Income for more than two years.

Murthy holds a Master of Commerce degree and has completed his PGDBA from Somaiya Institute of Management & Research.

Q1. 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?

Even though the next move in rates is cut globally, there is divergence in global rates with Bank of Canada and ECB cutting rates. US Federal Reserve and Reserve Bank of India resolute to bring down CPI inflation to their targets of 2 and 4 percent respectively.

Rate cuts is not expected in India during the calendar year. However, the increased demand and lower supply is expected to drive down interest rates, even without any rate cuts.

The estimates of the Indian Metrological Department is of normal monsoon which should cool down CPI inflation in the second half of the fiscal year. Inflation in food items is expected to moderate in the coming months if normal monsoon pan out.

The Bond market rallied due to RBI dividend payment of Rs 2.11 Lakh Crores. This amount is Rs 1.30 Lakh crores excess than what is budgeted in the interim Budget. This excess amount received by the Government is 0.37 percent of GDP.

Corporate bonds spread have fallen to historical low due to lower supply and high demand from end investors. In this scenario, Government Securities present better capital appreciation opportunities compared with corporate bonds.

Q2. In May 2024, yields on Indian government bonds (IGBs) fell by 12-15 basis points (bps). What could be the possible reasons?

1. US yields have fallen as unemployment rate moved towards 3.9 levels and

2. April non-farm payroll indicated moderation in economic activity, are the two possible reasons for IGB fall.

3. RBI dividend of Rs 2.11 Lakhs Crore, which is excess of Rs 130 Lakhs Crore should lead to lower borrowing in the current year.

Q3. It is expected that in the upcoming RBI MPC meeting on June 7, 2024, the RBI will maintain its current rate stance. What are your views on it?

On June 7, 2024, RBI Monetary policy is largely on expected lines, with no change in stance or policy rates. Continued focus to get inflation within target zone on sustainable basis, thereby indicating no near term likelihood of policy easing. MPC voted with a 4-2 majority to keep key rates unchanged (Repo Rate at 6.50%, SDF rate at 6.25% and MSF rate at 6.75%). MPC decided with a 4-2 majority to maintain stance as withdrawal of accommodation. RBI has indicated nimble systemic liquidity management on an on-going basis, with an objective of keeping overnight operating rate (WACR) aligned with stance of policy.

Q4. What risk management practices are you implementing to protect fixed-income portfolios in uncertain times?

We follow the SLR process, that is safety ,liquidity and subsequently returns when managing the fixed Income Portfolio. Our internal credit evaluation process is a objective stand alone process which is scaled down by corporate governance factor. Our rating is dynamic as we incorporate early warning signals in our model. Our rating transition is faster than the credit rating agencies which allows us to stay ahead of the curve in terms of downgrades or upgrades.

Q5. Most of the liquid funds have delivered 7% plus returns in the last 1 year. What made these funds deliver such returns?

Short end yield remained quite elevated last year due to tight liquidity condition and high credit growth. Credit growth continue to be robust with incremental credit growth higher than 100 percent for the last two years. Frictional liquidity due to high government balance and RBI keeping banking system liquidity in deficit to control Inflation has led to yield curve flatness , with the short end of the yield curve trading 75 to 100 basis points over the operating rate of 6.50. This has led to liquid fund generating returns above 7 percent levels.

Q6. Active debt funds garnered nearly Rs. 66,000 crore in net inflows in April, most at least since December 2020. What are the probable reasons for the surge in investor interest?

Debt fund flows increased due to corporate and banks investments during the start of the financial year due to expectation of rate cuts in US and India. This flow has come down in the subsequent month as both the Federal Reserve and RBI has indicated there focus to bring CPI inflation to target levels of 2 and 4 percent. RBI has upped its GDP growth forecast to 7.2 percent against 7 percent indicated earlier.