ETMarkets Smart Talk | Rate-cut cycle over, RBI may be at cusp of rate hikes; yields could inch higher: Puneet Pal
PGIM India’s Puneet Pal expects India’s rate-cut cycle to end and policy rates to rise 50-75 basis points by FY27 amid higher crude and sticky inflation. He sees rising yields creating opportunities in high-quality corporate bond and target-maturity funds.
After an extensive period of rate cuts, India's fixed-income market may be transitioning into a new phase, according to Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund. The rise in crude oil prices, along with higher global bond yields and persistent inflation, is exerting renewed strain on the domestic bond market. Pal anticipates the Reserve Bank of India (RBI) may be on the verge of initiating rate hikes, with policy rates potentially increasing by 50-75 basis points by the end of FY27. This shift could lead to a rise in bond yields as inflationary pressures intensify.
Despite the higher yields, Pal sees an opportunity for fixed-income investors over the next six months. He recommends a phased investment approach, especially in high-quality corporate bond funds and target-maturity funds. The 10-year government bond yield is currently around 7%, a level Pal considers favorable for investment. In this edition of ETMarkets Smart Talk, Pal delves into the outlook for interest rates and bond yields, highlights the key risks for fixed-income investors, and offers guidance on how investors should adjust their portfolios as India moves from rate cuts towards a potentially tighter monetary policy cycle.
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