Investors should consider short-term/credit risk funds in a rising interest rate scenario

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Sticking to asset allocation is of paramount importance in such market conditions. One could consider a skew towards short-term/credit risk funds and FMP kind of strategies in such a market scenario, Lakshmi Iyer, CIO (Debt) & Head – Products, Kotak Mutual Fund, said in an interview with Moneycontrol’s Kshitij Anand.

The rupee slipped to a fresh record low near Rs 73/USD this week. What is your near-term outlook for the currency?

We have had a very good inning for the rupee over the past five years. Some bit of that is what is being given the pace of depreciation of rupee in the near term.

Apart from USD strength, domestic macro headwinds in the form of widening trade deficit, rising inflation also exists. The foreign portfolio investors (FPIs) have also been net sellers in India debt YTD aggravating the situation. Hence rupee, in absence of any strong catalyst may remain at current levels in the near term.

In an environment of rising interest and bond yields, should investors change their approach towards investing? Which funds are ideal to be included in portfolio and why?

Sticking to asset allocation is of paramount importance in such market conditions. Rising interest rates need not necessarily lead to a capital loss (unless asset is sold).

One could consider a skew towards short-term/credit risk funds and FMP kind of strategies in such a market scenario.

Considering rupee tailwind, is it time for investors to go overweight IT and pharma sector?

We have added some exposure to both these sectors in some of our equity portfolios as a defensive bias in such a scenario.

Both — Sensex and Nifty — are trading at their all-time highs. Some experts are fearing a fall of about 10% and even the upside remains fairly limited. What are your views?

It is very difficult to time the market falls and rises with great accuracy. Current markets are a bit stretched, though not at extremes.

Given various state elections and mother of all events — general election — mid of next year, markets could remain a tad choppy and rangebound in the near term. The key would be to stagger investments in such a scenario.

FIIs have been sellers in recent times and domestic retail investors have been filling the shortfall. Do you think the momentum is likely to continue?

The equity culture in Indian retail investors has gained momentum in past few years. The percent allocation to equities in Indian households in among the lowest as compared to most counties – emerging and developed.

Equities have the potential to beat inflation and create wealth over long periods of time. Hence this momentum could continue, albeit with a bit of slowdown.

FIIs have in general been cautious on emerging market pack – and India is not an exception to that. Indian markets have displayed resilience despite FII seeing.




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