Investors must balance risk and liquidity in fixed-income market, says expert
Siddharth Chaudhary of Bajaj Asset Management Limited suggests using a combination of instruments to navigate rising bond yields and tightening liquidity.
India's fixed-income market is experiencing heightened uncertainty due to rising bond yields, tightening domestic liquidity and shifting global interest rate expectations, according to a report by the Economic Times.
Siddharth Chaudhary, Head of Fixed Income at Bajaj Asset Management Limited, said the external environment has begun to influence the Indian market more meaningfully over the last three months.
Chaudhary noted that while domestic inflation and liquidity were previously the primary drivers, factors such as higher global yields, crude oil concerns and pressure on the INR are now significant.
Regarding US policy, Chaudhary's base case is that the Fed will implement a 25 basis point rate hike in December and then maintain current levels through the first quarter of 2027.
He warned that higher US yields could narrow the yield advantage of Indian bonds, potentially putting pressure on the rupee and foreign flows into Indian debt.
When choosing between products, Chaudhary said investors should consider when money is required and their tolerance for volatility.
He suggested that bank fixed deposits offer predictability, government securities provide sovereign credit quality, and debt mutual funds offer diversification and liquidity.
For most investors, Chaudhary recommended a combination of liquid or money market funds for near-term needs and high-quality debt funds for diversification.