Chief Investment Officer (Debt) & Head Products
Ms.Lakshmi Iyer has been with the Asset Management Company since 1st April 2000. From 2000-2006 Lakshmi was performing the role of a fund manager where she was responsible for credit research as well as deal execution, managing fund performance across all debt funds and assisting sales in client interaction where required. From September 2006 till September 2008 she was Heading Products where her primary responsibilities were product related initiatives, product pricing and coordinating with the funds management and sales team in the role of a portfolio specialist. From September 2008 till date she is heading the Fixed Income and Products team. In her earlier stint, from November 1997-October 1999 in Credence Analytics Pvt Ltd. she has also worked as a Research Analyst where she was tracking corporate bond markets in India and generating research reports. She was also instrumental in conceiving various financial software tools for Indian markets through effective liasoning with software and technical team at Credence.
Q. What is your fund house view on the budgetary estimates w.r.t. fiscal deficit targets, borrowing and disinvestment plans?
Answer: We believe that the Fiscal slippage in FY18 as well as FY19 Budget is marginal. The slippages can be absorbed by the market even without opening additional FII limits. The RBI having done OMOs during the demonetisation induced liquidity phase should have enough headroom to manage this. However, PSU banks are absent from the Gsec market (as buyers) and that is hurting bond market sentiment. They would be important demand levers to support the borrowing program next year. The disinvestment plan too seems achievable provided that the market levels and investor participation remains high.
Q. How will the government's roadmap impact the debt markets and the bond yields?
Answer: The government’s borrowing roadmap usually removes the supply side surprise for the market, and as such has low impact. Having said that, the current bond yields are less affected by the supply side issue than with the demand side. The market is unable to measure up the natural gilt demand in the market. Typically we see higher supply leading to higher yields and vice Versa. In the new financial year, it is the vagaries of demand that may affect the yields more, than that of the supply.
Q. What is your take on the NPA issue faced by the economy? Can you explain how does this impact the debt market and in turn the investor returns?
Answer: NPA’s are partially a result misallocation of capital, partially due to structural economic cycles and partially due to corporate governance issues. We are currently facing an amalgamation of all the three factors, which amplifies the mess. Usually the NPA’s are borne by the equity investors of the banks, but in case of PSU banks, the NPAs, due to government ownership, has a fiscal impact. Thus funding these NPAs may cause pressure on fisc, raise the cost of funds and divert capital from investment funding towards loss management.
Q. What has your fund house's credit and duration strategy in terms of managing your funds?
Answer: We believe that ‘yield at reasonable risk’ is an optimal long term approach to creating value for the investors. We therefore seek underrated securities for our credit funds. This would include new to capital market issues, existing issuers foraying into new businesses, promoter funding based on liquid collaterals like shares etc. Such businesses need to have viable cash flow projection. And to top that, we also ensure that proper collateralising of debt has been done to cover the risks. On the duration side, we seek to create alpha by playing along the curve and on the spread. We seek to actively manage duration to ride to interest rate cycle and/or capture the yield to benefit the underlying investor.
Q. What would be your advice to investors with short, medium and long term investment horizons in debt funds? Where should they invest?
Answer: The market is currently providing high yield carry as rates are at elevated levels. On the other hand the growth imperative is also increasing. This two combined with the rising credit off take indicates that present yield levels in corporate bond category look appealing. For that reason, we believe that long term investors, unwilling to assume NAV volatility in duration, may invest in credit accrual debt strategies with 3 year investment horizon. Other than that, investors with 12 month investment horizon can also look at investing in low duration fund. Very short term money of up to 6m could be deployed into liquid/ ultra-short funds.