Attractive returns despite interest rate uncertainties
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These include the still high levels of real wage growth, elevated levels of CPI particularly in the food component, as also high inflation expectations entrenched in the economy, and most importantly the high level of India's current account. We had already been of the view that markets were overpricing the stimulus from rate cuts, hence not too surprised by the slight negative reaction following the monetary policy.
Against this backdrop, the course of interest rate cuts over the year could be uneven. Nonetheless, we believe fixed income markets should perform well in 2013 with long bond/flexi bond funds delivering impressive returns. We also expect short term bond funds to perform well given their attractive risk adjusted return potential.
The author is Head – Fixed Income, L&T Investment Management