Mr. Charanjit Singh

Assistant Vice President - Equity, DSP Mutual Fund

Charanjit has a total work experience of over 16 years. He joined DSP Mutual Fund in September 2018 as Assistant Vice President in Equity Team. Charanjit has also worked with B&K Securities, Axis Capital, BNP Paribas Securities, Thomas Weisel Partners, HSBC, IDC Corp and Frost & Sullivan. He is a MBA in Finance and also holds a B.Tech in Electronics and Communication.

Q1. Regarding Operation Sindoor news, how do you anticipate its impact on market volatility? Do you expect significant fluctuations, or will the markets likely remain range-bound given the anticipated nature of this news?

Ans 1. Operation Sindoor has fundamentally altered perceptions of India's military capabilities and regional power status, establishing a new deterrence dynamic with Pakistan and signaling India's readiness to act decisively. The operation initially triggered market volatility but markets quickly stabilized and remained range-bound, with defence stocks rallying on expectations of increased spending before some profit-taking. The government's planned Rs 50,000 crore supplementary defence budget boost and increased focus on advanced military technologies and infrastructure sectors are likely to sustain positive sectoral momentum. Overall, Operation Sindoor has created selective opportunities in defence, infrastructure, and technology sectors amid a stable market environment, reflecting investor confidence in India's strategic and economic resilience. This mirrors the historical pattern where geopolitical crises cause short-term volatility but ultimately reinforce market strength and sectoral growth in areas aligned with national priorities.

Q2. What do you consider the most significant driver of market movement this year? Will it be interest rates, commodity prices, tariffs, or something else that will primarily dictate market volatility?

Ans 2. Markets have digested the uncertainty related to global tariff wars on hopes of lesser disruption and trade agreements by major economies. However, end to global turmoil is not in sight as Chinese growth is slowing down, US interest rates are holding steady and interest rates in Japan are moving up. Overall, the scenario is ripe for another 50bps rate cut by RBI over the next 6 months, however the declining rate differential with US and other large economies is a key factor to watch out for. Conditions are ripe for domestic demand recovery given lowest food inflation (1.78%) from Nov21 and CPI (3.16%) since August 2019, Strong crop output for Kharif and Rabi in FY25 (6.8% and >3% growth), normal monsoon prediction (106% of LPA) and benefits of tax cuts.

FY26 consensus earnings forecasts have been resilient through the reporting season. There could be a possibility of earnings upgrades in H2FY26. This is driven by two factors: i) consensus has not captured the full second-order impact of monetary easing and ii) soft commodity prices could produce margin surprises across sectors. We see the strongest likelihood of upgrades in discretionary, energy and technology sectors. Strong earnings resilience should help sustain momentum in Indian equities. Valuations are now in neutral territory, with the Nifty trading at long term average on 1 year forward P/E while 30% of BSE200 stocks are trading at P/Es that are over 1 standard deviation over long term average. Valuations could overshoot if earnings momentum accelerates, especially with strong tailwinds from monetary easing. We would use any short-term correction to add to positions.

Q3. What is the current sentiment of Foreign Institutional Investors (FIIs) towards Indian markets? Despite recent net buying, they've withdrawn more than Rs 13,000 crore from the cash segment of Indian equity markets in April month.

Ans 3. The US-China agreement marks the passing of peak tariff pain. This tariff shock is likely to weigh on global trade/ economy. There will be rotation in to emerging markets led by reversal of US exceptionalism. This could lead to big lead to big flow out of US into the emerging markets which could be large as 1 trn USD. Over the last 4yrs FIIs sold $10bn over Apr 2021-March 2025. In last 10yrs net FII investment is almost negligible. There could be reversal of this trade someday which will lead to FII to start investing in India as a catchup trade. While India is in a better position given the limited dependence on trade, a currency competition has the potential to dent its recovery. India being a net importer will also face a depreciation dilemma many other EMs will not. Domestic macro and flows can support, but we do not anticipate FII flows to return quickly in such an environment. A fruitful trade treaty with the US will change the outlook.

Q4. Considering the recent earnings performance, the previously attractive banking and financial sector seems less compelling. In this market environment, where do you believe investors can find a significant margin of safety? If not financials, which sectors might offer promising opportunities?

Ans 4. Market concentration is rising as investors flocking to large-caps amidst correction. In previous episodes of rising concentration, defensive sectors, especially FMCG and Pharma outperformed in all episodes, whereas IT outperformed in two instances (2010-13 and 2017-20). For 2025 the quality factor could be the main investing theme which would keep consumption, pharma and IT sectors as main investing areas. While industrials could get impacted due to weaker capex growth by Central Government and slow revival in private capex. Selective sectors like Defense, Hospitals, Electronics, Capital Markets and Telecom could be also evaluated for investments based on the valuation comfort.

Q5. Given gold's recent rally to ₹1 lakh and its outperformance against equities, is the market now viewing it not only as a safe haven but also as a primary driver of returns?

Ans 5. Gold has trended lower since testing an all-time high of USD 3,500/oz on 22 April. The downward shift has been accompanied by ETP outflows and speculative positioning being scaled back, but China's demand remains supportive. Gold's rally has not been driven by a sole factor, and drivers from central bank flows to USD weakness remain supportive of further highs. While fears over the risk of recession remain and could stoke additional safe-haven demand for gold, a number of risks linger. These include: (1) slowing central bank buying; (2) de-escalation of tariff risks and increased market confidence; (3) market expectations around US rate cuts pausing or swinging to rate hikes; and (4) short-term risk from further volatility across other asset classes, leading to another liquidity rush or cash needs for margin calls, which would weigh on gold.

Q6. What's the outlook for investing in small and mid-cap stocks as we move into FY26? How should investors approach this segment?

Ans 6. Small and mid-cap stocks have experienced volatility recently, partly due to geopolitical tensions and investor rotation into thematic and sectoral funds. Looking ahead to FY26, these segments offer growth potential but come with higher risk and sensitivity to macroeconomic and geopolitical factors. Large caps benefiting from domestic recovery should be the focus, while SMIDs should be looked selectively where one spots fair bottom-up valuations.

Mr. Sandeep Yadav

Head - Fixed Income India, DSP Mutual Fund

Sandeep has a total work experience of more than 20 years. He joined DSP Mutual Funds in September 2021 as Senior Vice President - Fixed Income Investments. Sandeep has previously worked for Yes Bank, and had headed the Derivatives Structuring, Fixed Income Trading and Primary Dealership. Prior to that Sandeep had worked in Technology space in Cognizant Technologies, Hughes Services and Mahindra British Telecom. He is a Computer Engineer (Pune University) and PGDBM (IIM Bangalore). Sandeep is also a CFA chartered holder.

Q1. What is your assessment of the RBI's recent announcement of a ₹1.25 lakh crore liquidity infusion in May? What do you believe were the primary drivers behind the RBI's decision to lower the repo rate by 25 basis points (bps) at this juncture?

Ans 1. RBI has turned accommodative in its monetary policy looking at the growth inflation dynamics - in particular, decline in inflation, reaching a low of 3.16% in April-2025 helped shape the monetary policy view, and help support India's GDP slowdown - linked to consumption slowdown currently, but the global growth environment also remains patchy. So the RBI worked to remove liquidity deficits in banking system liquidity to enable growth - In Jan-25 durable liquidity was negative INR 45,000cr and is currently upwards of INR 3 lakh crore (and expected to increase). The expectation, basis current trends is that not only will liquidity be left on the table, but there will be further rate cuts as well.

Q2. How do you currently view the Indian fixed income market in comparison to its global counterparts? Specifically, what do you see as the most significant opportunities and unique risks for investors in Indian fixed income at this time?

Ans 2. India's fixed income market has been marching to its own beat lately and has been remarkably resilient even as global interest rates continue to rise. This is driven significantly by the domestic demand supply factors, anchored by the Government’s commitment to maintain fiscal discipline, growing financialization (growth in insurance, pension all lead to demand, besides banking system demand) and the expectations that RBI will cut rates.

The opportunities come from a relatively stable and well-orchestrated macro environment. The risks come from potential fiscal slippage - this could happen if GDP slows (lower probability) or say greater defense spending (difficult to predict). Furthermore, even as inflation is getting anchored, unpredictability of monsoons can lead to food inflation, and then on inflationary expectations. Note that India potentially may lower tariffs and lead to better inflation outcomes, different from problems elsewhere.

Q3. How do you see the Fed's current stance on inflation impacting the shape of the yield curve over the next 12 months?

Ans 3. The Fed is now on wait and watch given its dual mandate. On inflation, it is the permanence of tariff inflation and one time shocks, even as tariffs themselves are being negotiated. The Fed will also need to look at labour market developments, and whether this policy uncertainty will lead to any slow down. While they said they are currently watching, the market is busy pricing the extent of rate cuts, and all over the place!

The next important point is on term premia aka shape of the yield curve. We are at a unique time politically in the World with changes in world order. Europe needs to spend more on defense. US is betting on import substitution (we Indians know it well!) and trying to pass a bill which will increase fiscal deficit and debt/GDP. Hence the curve has steepened significantly there. So again, in as much the Fed can influence policy rates, the US curve will move to its own demand supply dynamics, including foreign demand. India continues to March to its own beat.

Q4. Are accrual strategies still attractive at this stage of the interest rate cycle, or is it time to switch to dynamic/active duration funds?

Ans 4. The choice between active and accrual strategy is not one or the other. An active strategy can, and should, actively move to the accrual strategy if it is more beneficial. The choice is eventually between accrual and capital gains (duration) strategy (rather than accrual and active).

In our active funds, we have advocated preference to capital gains (duration) over accrual for the past two years. In fact the ideal time to shift to duration strategy was a few quarters back. We may move to accrual strategy in the next few quarters when we believe that the capital gains may be behind us.

In terms of lower rated credits, it is always prudent to invest in companies with good governance, and from a mutual fund perspective, be careful of liquidity risks as well.

Q5. Foreign Portfolio Investors (FPIs) have turned net sellers of the Indian debt market, pulling out a record $2.27 billion up to April 2025. What is triggering the outflows?

Ans 5. The FPI inflow story for now has run its course with the expected passive inflows due to inclusion in JP Morgan flows. Now the FPI flows will be determined by trading interest of foreign participants, who will also be looking at opportunities elsewhere, stability of INR and geopolitical risks. This will make flows volatile and less predictable, but is still small in the context of the depth of the Indian market.

Note: Views provided above are based on information in the public domain and subject to change. Investors are requested to consult their mutual fund distributor for any investment decisions.

Mr. Shriram Ramanathan

Chief Investment Officer - FIXED INCOME, HSBC Mutual Fund

CIO - Fixed Income, overseeing the management of about INR40,000cr (~USD 8bn), in assets across various Fixed income and Hybrid funds (INR only).

He has been in the Asset Management business since 2001 and has over 22 years of experience in fixed income markets.

Prior to joining HSBC Asset Management, he was Head of Fixed Income at L&T Investment Management Limited (2012-2022).

From 2010-2012, he was Portfolio Manager at Fidelity (FIL) Fund Management managing their India domiciled INR FI funds.

From 2005-2009, Shriram was based in Hong Kong at ING Investment Management Asia Pacific, where he managed multi currency portfolios as Senior portfolio Manager, Global EMD (Asia) - co-managing the Asian portion of Emerging Market Debt funds, with focus on sovereign HC and LC rates/ FX, as well as pure Asia local currency funds / mandates.

His earlier assignments were with ING Investment Management India as Fixed Income Fund Manager, Zurich Asset Management Company in fixed income research and with the Treasury department of ICICI Ltd, where he started his career in investments in 2000.

Shriram is a Chartered Financial Analyst and holds a Post Graduate Diploma in Business Management from XLRI Jamshedpur and an Engineering degree from the University of Mumbai.

Q1. To maintain liquidity, the RBI has implemented several measures, including the highest net OMO purchase activity in India since FY21. Now that there is a surplus in the system, how do you see the RBI's focus evolving, and what could be its next steps to sustain economic growth?

Ans 1. RBI has been extremely proactive in managing liquidity over the last few months, delivering more than market expectations. The below table highlights the liquidity tools utilized by RBI over the last few months. By the end of April 2025, RBI would have injected around INR 7.3 Lakh Crs worth of durable liquidity into the system (including CRR cut, OMO purchases and FX Buy Sell Swap).

In the recent Monetary Policy Committee (MPC) meeting, the Governor emphasized that the RBI is committed to provide sufficient system liquidity and will proactively take appropriate measures to ensure liquidity remains adequate. At the press conference, the Governor indicated that a surplus of around 1% of net demand and time liabilities (NDTL) was considered as a reasonable assessment of liquidity. RBI believes that maintaining this surplus is essential to ensure that the policy easing conducted till now and future rate cuts get transmitted effectively into the economy. We believe RBI will continue to support growth through further policy easing and liquidity infusion.

Q2. What are your expectations for the interest rate cycle, considering the growing indications of potential easing? Reports suggest that the RBI governor may lean toward lowering interest rates further. Are you anticipating a mild or more significant easing, and what assumptions are you factoring in for interest rates in India?

Ans 2. Domestic inflation has softened considerably, with the last two inflation prints significantly below 4%. The outlook for food inflation has turned decisively positive on robust agriculture output. RBI expects headline inflation to remain below 4% for the next three quarters and FY2026 inflation to be at 4%. Recent fall in crude prices also augers well from a domestic inflation perspective. On the other hand, RBI revised lower their GDP forecasts, with FY2026 GDP now expected at 6.50%. With global trade and tariff related policies clearly expected to impede growth, risks of growth numbers undershooting estimates remain. Against this backdrop, we believe RBI will continue to support growth through further policy easing and liquidity infusion.

Additionally, the stance change to ‘accommodative' in the recent MPC meeting clearly indicates a dovish shift in policy guidance, and implies that the current easing cycle could see deeper rate cuts than earlier envisaged. We expect RBI to further cut rates by another 50-75 bps taking the terminal rate to 5.25%-5.50%, assuming inflation remains in line with RBI estimates.

Q3. Indian bond yields have been hitting three-year lows, driven by the RBI's OMO purchases and global market dynamics. How do you see bond yields evolving from here, and what's your perspective on their future movement?

Ans 3. Indian bonds continue to see positive momentum. What started initially, with the global index inclusion (adding another significant investor segment to Indian bonds), continued with domestic demand supply turning favourable driven by fiscal discipline demonstrated by the Government, positive growth in AUMs of domestic investor segments and followed up by easing in policy rates, liquidity infusion and large OMO purchases conducted by the RBI. India has remained resilient even in an environment of increased volatility in global markets, given RBI's proactive and timely measures.

However, we believe that there are further legs to this rally. We expect RBI to further cut rates by another 50-75 bps taking the terminal rate to 5.25%-5.50%. We also expect RBI to remain proactive on liquidity measures. RBI is also expected to transfer dividend to the Government to the tune of around INR 2.5 Lakh Crs in May, which will be positive for Government bonds. Corporate bond spreads also remain fairly high, and with liquidity expected to remain positive, we expect to see spread compression in corporate bonds. We continue to expect yields to move decisively lower, along with steepening of the yield curve and encourage investors to have adequate duration in their portfolios to benefit from lower rates, subject to their risk return frameworks.

Q4. S&P has revised India's GDP forecast downward by 20 bps, from 6.7% to 6.5%. Do you believe this downgrade is primarily due to tariff-related uncertainties, or could internal factors like commodity inflation, monsoon conditions, or other headwinds also be contributing? What do you think is the rationale behind this downward revision in India's GDP outlook?

Ans 4. We believe the downward revision of India's GDP by S&P from 6.7% to 6.5% reflects a combination of both global and domestic challenges. While tariff-related uncertainties and global trade tensions largely contribute to the revision, domestic factors also cannot be ignored. Slow capex revival along with muted pick in exports have impacted growth.

However, manufacturing activity is showing signs of revival and the services sector remains resilient. Investment activity is picking up on the back of the Government's push on infrastructure spending. While monsoons are expected to remain normal this year, the impact of heat waves will have to be monitored. From a debt market point of view, the underlying factors support a cautious outlook on growth and are likely to push RBI to stay accommodative for longer.

Q5. Do you believe bonds currently present a better investment opportunity than equities, given the rising uncertainty and stretched valuations?

Ans 5. Equities, both globally and domestically have remained fairly volatile over the last few months. Risks of recessionary impact in the US along with increased risks of tariffs and global trade wars along with stretched valuations can continue to keep equity markets volatile.

On the other hand, under a proactive RBI along with strong domestic macro fundamentals, benign inflation and relatively stable currency, we believe Indian debt markets are appropriately placed to offer favourable risk reward to investors. For investors looking at safety and steady income, Indian bond markets offer good value along with asset diversification and predictability in returns at relatively lower risk. Not only can investors benefit from steady income they can also possibly generate alpha in a falling interest rate environment while staying invested for a medium-term investment horizon. Corporate bond spreads also remain high, which are likely to benefit from spread compression in an easy liquidity environment.

We continue to expect yields to move lower, along with steepening of the yield curve and encourage investors to have adequate duration in their portfolios to benefit from lower rates, subject to their risk return frameworks.

Q6. As a Debt Fund Manager, what difference do you see in the thought process of two governors in terms of Liquidity, Inflation, and Growth?

Ans 6. While both Governors operated in different global and domestic macro environments, we observed few differences in the approaches of the two RBI Governors on different factors like liquidity, inflation, growth and currency.

In the earlier regime, just shortly after the Governor took over, the world was hit by the pandemic, which required the RBI to strongly support growth and keep easy liquidity in the system for a longer period of time for smooth functioning of the economy. This was broadly in line with what other Central Banks did during that period. However, once inflation picked up RBI had to tighten monetary policy. Over the last two-three years growth picked up sharply, and hence the primary focus remained on controlling inflation resulting in tighter monetary policy and subsequently tighter liquidity conditions. This was also because we saw multiple instances of sharp increase in food inflation due to various factors, which made it imperative to operate with primary focus on inflation. Hence, in the earlier regime the approach was more cautious and focused on protecting the economy from high inflation risks, as was the need of the hour. The Governor also believed that markets should operate in a low volatility environment as it allows smooth functioning of financial markets, which resulted in a period where Rupee became one of the least volatile currencies as RBI continuously intervened to keep Rupee fairly stable.

In the current regime, the Governor is seen to be prompt and more proactive in his actions. During the period where Dollar strengthened considerably, RBI let Rupee depreciate in line with other currencies to keep it competitive, but once RBI felt that speculative positions were building up, they intervened strongly to discourage such moves. Once, inflation turned benign, RBI focused attention towards growth, as was again the need of the hour. Not only did RBI begin easing rates, it also infused considerable amounts of durable liquidity into the system to ensure that rate transmission happens smoothly and promptly in the economy. One key difference observed was in the communication of policy stance by the Governors. While earlier there was some ambiguity in market participants pertaining to reference of stance (whether it referred to rate trajectory or liquidity), the current Governor made it explicitly clear that the stance provides policy rate guidance, without any direct guidance on liquidity management.

While both the Governor's approach reflected their reading of global risks, domestic inflation trends and India's growth path, India has and continues to remain a bright spot in terms of a strong monetary policy framework by RBI and stable macro-economic factors. We have respected the approaches of both the Governors and learnt to adapt our strategies accordingly.

Note: Views provided above are based on information in the public domain and subject to change. Investors are requested to consult their mutual fund distributor for any investment decisions.

Source: Bloomberg & HSBC MF Research estimates as on April 20, 2025 or as latest available

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