The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday in its bi-monthly monetary policy review meeting decided to keep the policy rate unchanged at 6.50%. This decision has been kept the same since April 2023.

HERE IS WHAT RATE PAUSE BY RBI MEANS FOR THE MUTUAL FUND INVESTORS:

Adhil Shetty, CEO of Bankbazaar.com

Debt mutual funds should benefit from falling interest rates. As rates drop, the value of bonds in these funds rises, leading to better returns for investors. It’s a good time to consider them. Equities and stock markets have a positive long-term outlook. With inflation in check and the economy recovering, businesses should do well. Equity funds, therefore, remain a strong choice for long-term investors.

Avnish Jain, Head, Fixed Income at Canara Robeco Mutual Fund
The RBI Monetary Policy Committee (RBI MPC) sprung a surprise. While the repo rate remained steady, the stance was changed to “neutral”, setting the stage for a possible rate cut in the next policy in December. The overall policy was positive for markets with yields down and curve steepening and short-term bonds rallied more on change in stance and expected rate cut likely in the next policy meet. With the induction of Indian FAR G-Secs in the FTSE Emerging Market Bond Index, markets are likely to remain buoyant in the near term

Rajeev Radhakrishnan, CIO - Fixed Income, SBI Mutual Fund

The evolving domestic growth inflation outlook clearly was apt for a change in the monetary policy stance to neutral. While remaining cognizant of emerging risks on the inflation outlook, the neutral stance provides more flexibility to address evolving macro dynamics. From a near term perspective, the policy focus would likely remain attuned to address the skewness in system liquidity and any potential financial stability risks.

Abhishek Bisen, Head Fixed Income, Kotak Mahindra AMC

With RBI changing its stance to neutral, we expect RBI to cut the rate by 50 bps over the course of the next 1 year. RBI policy along with Indian Bonds being included in the FTSE Emerging Markets Government Bond Index, Indian 10-year G-Sec has rallied and is trading at around 6.75% levels post the policy announcement.

Murthy Nagarajan, Head-Fixed Income, Tata Asset Management

With global geopolitical disruption, there could be a growth slowdown in the coming months. This should become clear during the next policy statement on December 6, 2024. There is a good probability of a rate cut in the next monetary policy.

Indian inclusion in the Russell global emerging market index and further inclusion of Indian in other indexes are positive for the bond market. We should see government bond yields moving down in the coming months due to these developments.

Puneet Pal, Head- Fixed Income, PGIM India Mutual Fund

The change in the monetary stance gives flexibility to the MPC to react to evolving macro-economic variables and markets will now start discounting policy rate cuts over the next quarter and we continue to expect yields to keep drifting lower.

Prashant Pimple CIO- Fixed Income, Baroda BNP Paribas Mutual Fund

Going forward, we expect RBI MPC policy to follow the inflation trajectory and any space for a domestic pivot is expected in Q4 FY25, where we expect inflation to be closer to RBI’s 4% target driven by winter food crop arrival. Having said that, current geopolitical conditions remain a risk to our inflation and growth projections.

Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India)

Given the kind of corporate credit pickup last year, corporate bond spreads are above long-term average. So, I believe those funds that invest for 3-5 years which includes corporate bond funds, there is a good opportunity for investors. Investors having a long term investment horizon and appropriate risk appetite, gilt funds are also suitable. Investors can also create a basket of both.

Deepak Ramaraju, Senior Fund Manager, Shriram AMC

The bond and equity markets are expected to react positively in the medium term. Though short-term biases of FII may continue towards Chinese markets keeping pressure on the equity markets, the resilient domestic flows can defy deep corrections in the equity markets despite high valuations. The markets may trend positive with subsequent rate cuts by the US Fed. However, stock-specific corrections can be expected based on the earnings performance. Overall, in the short term, one can expect a buy-on-dip approach with a neutral stance by RBI.

Pankaj Pathak, Senior Fund Manager- Fixed Income, Quantum AMC

Looking ahead rate cuts would make loans cheaper and would bring down deposit rates and bond yields. Thus, investors in short-term deposits and short-term debt and money market funds are exposed to reinvestment risk. At this point, it would be prudent to lock long-term fixed deposits or invest in debt mutual funds that have an allocation to long-term bonds.

For investors with moderate risk appetite and medium to long investment horizon, dynamic bond funds are very well positioned in this environment.