Ms. Lakshmi Iyer
Chief Investment Officer ( Debt) & Head Products, Kotak Mahindra Asset Management Company Limited
Lakshmi heads fixed income and products team at KMAMC. She has been with the organization since 1999. Lakshmi joined KMAMC as a fund manager, and was responsible for credit research as well as deal execution, managing fund performance across all debt funds and assisting sales in client interaction. She has also been a portfolio specialist, and managed product related initiatives, product pricing and coordination with the funds management and sales team in that role. Prior to Kotak, Lakshmi worked with Credence Analytics Pvt Ltd, as a research analyst where she was tracking corporate bond markets in India and generating research reports. She was also instrumental for conceiving various financial software tools in collaboration with software and technical teams.
Q. The monetary policy committee (MPC) maintained the status quo on rates in August policy, what is your view on the same?
Answer : The status quote was largely anticipated by us due to rise in headline inflation (CPI) as food prices displayed an upward trend. This seems to be more due to supply side pressures and hence is likely to ease in the coming months. We therefore are of the view that the current phase seems to be that of a longish pause. Once the MPC draws comfort wrt receding inflation numbers, scope for easing should open up – more likely end of the year
Q. The spreads of corporate bonds over g-secs has narrowed sharply in recent months. This is true even for lower-rated bonds over higher-rated ones. Why has this happened and what does it mean for investors?
Answer : There was huge abrupt rise in corporate bond yields in the month of April do a fund house winding down 6 of their debt schemes. While it was more due to liquidity reasons, investors across credit oriented funds rushed towards exit leading to sharp spike in yields. Timely actions from RBI ensured liquidity avail to MFs via banks and subsequent rate cut in May 2020 led to compression in bond spreads. We believe that investors should stick to their intended investment tenure and not deviate due to market fluctuations. An investor who would have done a premature exit in April May period when yields rose sharply, has missed out on the upside when the yields have actually eased and spreads compressed to
Q. In lieu of the liquidity crisis a few months back, the RBI had taken certain measures too to the benefit of debt funds. Can you please share your experience over these challenging months and what is the present situation?
Answer : Most important reinforcement is to keep portfolios liquid. RISK is the MOST forgotten 4 letter word in good times. A diversified portfolio is able to stand the test of times in such challenging situations. Agility is also very key to fund management at such times. As of date, much of that phase is behind us and the timely intervention by the central banker did help to assuage the situation
Q. How is investor confidence today in debt funds in view of the undesired events in the recent past? Where are the new investors investing?
Answer : Investors do not like volatility.however it is imperative to note that every asset class comes with its own share of volatilities – degrees vary though. Interest rate and credit are 2 intergral parts in any fixed income investment. As in investor, one needs to prioritise one over the other while considering investments. With the flush of liquidity in the banking system and rates on banking products only inching lower, investors have slowly yet steadily started embracing some credit risk on their fixed income investments. Though confidence is gradually returning to this category, bulk of the flows still continue to move into high grade portfolios
Q. As a new investor looking to invest with safety as a priority but desiring decent returns, which debt funds would you prefer to invest your capital?
Answer : If investors want to weed out credit risk to a large extent, strategies like banking and psu funds and gilt funds are a better alternative. One must keep in mind however that the interest rate fluctuations have to be borne depending on the duration in the underlying portfolios
Q. What would be your message to a new investor wanting to put his bank FD money in debt funds but is still reluctant to do so?
Answer : Banks are flushed with liquidity. They would offer you “their” rates and NOT rates that “you” may desire. Debt funds do offer you a potential to accrue market linked returns. Hence it is suggested that you scan through the various options available in fixed income and suit it to you risk appetite. Fixed income offers investment solutions to every interest rate cycle, therefore shying away is definitely NOT an option.
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