Amandeep Chopra on headwinds in the fixed income space

By Morningstar Analysts |  04-04-17 | 

Amandeep Singh Chopra is Group President and Head of Fixed Income at UTI Mutual Fund. This AMC won the ‘Best Fund House – Debt’ award at the Morningstar Fund Awards 2017. Here he chats with Kaustubh Belapurkar, Morningstar India’s director of fund research.  

This is the second year in a row that UTI Mutual Fund has won this award. What to your mind has really worked in your favour? What's the mantra for success for UTI?

It's been a combination of factors. Clearly, what has really helped us have been a couple of things that we believe into very strongly.

I think when investors entrust their money to us it's essentially to ensure that we do manage it actively and we don't remain sort of passively-indexed.

We do believe that when we do invest that fund's corpus, it's essentially built around some of the key themes and strategies that we have.

We strongly believe that we are not sort of focused only on a singular strategy when it comes to managing our funds. It's a combination of top-down and bottom-up. So, a good macro view is important.

We also do lay a fairly strong emphasis on building a very diversified and well-researched portfolio.

One of the things which we've learned actually over the Global Financial Crisis is that it's becoming that much more difficult to take a very long-term view on the markets. So, I think, a lot of our strategy is actually built around near-term views. And I think that is what has really helped us.

To put it into perspective, over the last eight years the fixed income market in India has actually seen three full cycles. We've seen a bear market, bull market and so on three times. So, I think, clearly, just having held on to a position may not have really helped. I think from that perspective and the learning that we've had over the last few years clearly has helped us remain very nimble and agile and I think that's been the key driver for our portfolio performance.

The RBI has kind of taken a shift of policy stance. What do you think is going to pan out in 2017?

I have both, a short-term and a long-term view on the fixed income market.

In the long-term, I continue to be very positive. For the first time, I think, we've seen a fairly strong cohesion between monetary and fiscal policy in trying to address inflation, which clearly is positive for the fixed income market in the longer-term. Having said that, over the next 12 months I see a lot of challenges for the Indian market.

We clearly do know that there are very strong headwinds from the overseas markets that also are particularly driven by the U.S. So, in the backdrop of tightening by the Federal Reserve, in the backdrop of a strong dollar, and clearly some very sort of aggressive policies from the Trump regime, we do see a lot of risk for the Indian fixed income market. We are right now in a zone where over the next six months you will actually see an extended pause from the central bank.

While the macro will remain fairly sort of benign, I think the second half story is going to be very difficult for India. Around September 2017, we'll actually start being at the wrong end of the inflation cycle where inflation starts creeping up. We will also possibly have seen 2 to 3, two at least, rate hikes from the Federal Reserve. And I think in that backdrop, our view currently is that any further easing from the RBI is ruled out.

The focus right now remains largely on capital preservation, trying to focus on higher income accrual and not being very active on duration.

In our view, 2018 will sort of be the other end of the cycle where we'll start seeing some of the higher inflation trajectory slowly panning out and getting lower than where we are today.

So, 12 months will be a very trying period. Over the next 24 months, I'll still say that we'd be very constructive.

Do read our analyst's take on UTI Bond Funds:

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