‘Though ‘dil maange more', one has to prune down one's return expectations'

KAUSTUBH GUPTA Co-Head, Fixed Income, Aditya Birla Sun Life AMC Limited

Amid the raging debate between nascent growth and rising inflation, a lot has been happening in the debt markets. To demystify the same, we spoke to Kaustubh Gupta, Co-Head, Fixed Income, Aditya Birla Sun Life AMC Limited, who manages a host of mainstream debt funds. In this freewheeling conversation, we discussed various dimensions, ranging from the present situation in the debt market to the return expectations going forward.

Amid rising inflation, the RBI meeting in August saw one of the committee members showing disagreement with the maintenance of an accommodative stance. This means that inflation has started impacting the views of some members of the committee. Against this backdrop, what kind of impact do you visualise in the bond markets and the yield curve in the next few quarters?

From a macro perspective, it’s clear that the growth momentum is remarkably strong in developed markets relative to emerging markets. This is on account of two reasons: one, the significantly high monetary and fiscal stimulus and two, the availability of vaccines. Thus, it seems that the world will see uneven growth normalisation, with developed economies settling at higher levels, while the emerging markets will keep on struggling. In the case of the local markets, while growth is improving, it seems that there is a permanent delta shortfall from the pre-pandemic growth trajectory, and it may take about five to seven years to bridge this kind of delta shortfall. Our view is that inflation in India has peaked and over the next six months, it’s likely to be between 5–5.25 per cent. Thus, it is likely to remain in the target range of 4–6 per cent.