One of India’s top fund managers is becoming optimistic about higher yielding rupee corporate bonds, based on the view that the country’s recovery will exceed economists’ consensus estimate.
Maneesh Dangi, who oversees $ 25 billion in debt assets for Aditya Birla Sun Life AMC Ltd., expects India’s economy to grow 13% in the fiscal year starting in April, compared with a median forecast of 9% for economists consulted by Bloomberg. Dangi bases his view in part on optimism about the falling unemployment rate after the blocks were eased, as well as the policy steps helping minimize insolvencies.
Aditya Birla Sun Life Corporate Bond Fund is the third best performing among Indian mutual funds focused on the company’s banknote category last year, with an 11.4% return on its regular investment plan, according to data of the Mutual Funds Association of India.
“We are going to start increasing the AA risk,” said Dangi, 44, referring to corporate bonds with AA rating credit ratings. “AA grade quality papers, where yields have not been compressed to levels prior to Covid, are offering attractive returns.”
This approach must face several risks. While the government said economic indicators suggest a broad-based recovery ahead, predictions the worst contraction since 1952 in the current fiscal year. The recent resurgence of Covid-19 in countries that, like India, have been successful after strict previous blockades is also a reminder of how unpredictable the crisis can be. And the nation is still in home to one of the biggest outbreaks in the world globally.
Dangi said the “biggest risk” for his strategy would be any withdrawal support measures to contain the pandemic, and he stressed that the authorities face a delicate task in communicating with the debt markets.
Last week brought a severe warning about that account. Income awards in rupee, corporate bonds increased after falling to historic lows in 2020, after a central bank announcement that drain money market in an effort to normalize liquidity operations.
Dangi had been reducing the holdings of all corporate bonds, except the most secure, in recent years. He did this because of a credit crisis triggered by failure of a major shadow bank in 2018 that hit local markets even before the pandemic.
Now, however, he is interested in buying debts from companies that are likely to be promoted to AA in the near future. He also selected some non-AAA borrowers from sectors such as commodities, chemicals and automotive components, who could benefit from any sharp economic recovery.