Fundview: Debt fund flows to rise in 2023, 2-to-3 year corp bonds most lucrative- ABSL MF

Aditya Birla Sun Life Amc

12/12/2022 09:14

By Dharamraj Dhutia
       MUMBAI, Dec 12 (Reuters) - India's debt market is set to
offer better returns in 2023 versus this year, with short
duration funds and two- to three-year corporate bonds providing
the best risk-reward ratio, a senior executive at Aditya Birla
Sun Life AMC  ADIE.NS  said on Monday. 
    Indian government and corporate bond yields have been on an
upswing through this year as the Reserve Bank of India went on a
rate hiking spree. The spreads between the two are also expected
to widen as corporate bond issues, which were limited through
most part of this year, start to pick up.
    "The general preference remains for corporate bonds over
sovereign bonds due to better yields," said A. Balasubramanian,
managing director and chief executive officer of the fund.
    Corporate bond yields may see a 15-20 basis points (bps)
uptick from the next quarter as companies boost borrowings to
fund their capital expenditure, he noted.
        Balasubramanian expects inflows to debt schemes in 2023
to be two to three times higher than last year, while interest
in equity schemes remain muted.     
    On Friday, AA+-rated shadow bank Cholamandalam Investment
and Finance raised funds issuing 3-year bonds at 8.30%.
AAA-rated LIC Housing Finance will issue over 3-year bonds at
7.74% yield later in the day, and Kotak Mahindra Prime 3-year
funds at 7.80% on Tuesday. 
    Meanwhile, the yields on government bonds with similar tenor
remained in the 6.90%-7.10% band. 
    "Corporate bond yields of two- to three-years are very
attractive ... Five-year and 10-year bond yield spreads need to
go up for risk-reward to become favourable to investors,"
Balasubramanian said.  
    The five-year 7.38% 2027 government bond yield
 IN073827G=CC  was at 7.18%, while the 10-year benchmark
 IN072632G=CC  was at 7.30%, as against the AAA-rated Reuters
benchmark corporate bond yields of state-run companies in
7.50%-7.55% band.
    The next two-three months could see quick movement of funds
to corporate bonds and lower credit papers, he said, noting that
the best time to enter the debt market is when interest rates
stabilise as the central bank takes a prolonged pause after a
final 25 bps hike in key lending rate in February. 
 (Reporting by Dharamraj Dhutia; Editing by Swati Bhat and
Dhanya Ann Thoppil)
 ((Dharamraj.dhutia@tr.com))