{"id":6305,"date":"2022-01-06T18:00:26","date_gmt":"2022-01-06T12:30:26","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=6305"},"modified":"2022-02-10T16:17:15","modified_gmt":"2022-02-10T10:47:15","slug":"favourable-investment-strategy-amid-accommodative-stance","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/favourable-investment-strategy-amid-accommodative-stance\/","title":{"rendered":"Lakshmi Iyer of Kotak Mahindra AMC on a Favourable Investment Strategy Amid a Prolonged \u2018Accommodative\u2019 Stance"},"content":{"rendered":"\n<p><em>Lakshmi Iyer is the President and Chief Investment Officer (Debt) &amp; Head Products, Kotak Mahindra Asset Management Company. She has been with the organisation for over 20 yrs. Joining KMAMC in 1999 as a fund manager, Lakshmi was responsible for credit research, deal execution, managing fund performance across all <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-debt-funds\/\">debt funds<\/a> and assisting sales in client interaction.<\/em><\/p>\n\n\n\n<p><em>Prior to joining Kotak, Lakshmi worked with Credence Analytics Pvt Ltd, 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 in collaboration with software and technical teams. Lakshmi holds an MBA degree in finance from Narsee Monjee Institute of Management Studies.<\/em><\/p>\n\n\n\n<p>2021 started off as the year of hope \u2013 a hope that vaccination will overpower the virus. As the year 2022 dawns, while vaccination momentum is full-on, the Omicron variant of the virus seems to be threatening the globe yet again! 2021 was a sizzle for equities, a drizzle for <a href=\"https:\/\/www.tickertape.in\/blog\/fixed-income-securities\/?utm_source=blog&amp;utm_medium=gart&amp;utm_campaign=lksmiyr\">fixed income<\/a>, and a grizzle for <a href=\"https:\/\/www.tickertape.in\/blog\/the-golden-behaviour-during-crisis\/\">gold<\/a> from a returns perspective. Calendar year (CY) 2022, to our mind, is the year of adjustment \u2013 a year when excesses get weaned off, and policy normalisation gains momentum. We have already seen glimpses of that towards the end of CY 2021 with the Bank of England hiking rates and the US Fed\u2019s statement suggesting at least three rate hikes in CY 2022.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/favourable-investment-strategy-amid-accommodative-stance\/#Macroeconomy\" title=\"Macroeconomy\">Macroeconomy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/favourable-investment-strategy-amid-accommodative-stance\/#Inflation\" title=\"Inflation\">Inflation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/favourable-investment-strategy-amid-accommodative-stance\/#Policymaking-%E2%80%93-the-way-forward\" title=\"Policymaking \u2013 the way forward&nbsp;\">Policymaking \u2013 the way forward&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/favourable-investment-strategy-amid-accommodative-stance\/#Way-forward-for-fixed-income-allocations\" title=\"Way forward for fixed income allocations\">Way forward for fixed income allocations<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Macroeconomy\"><\/span><strong>Macroeconomy<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For India macro, the landscape may likely be shaped by an unevenly developed market policy normalization, uncertainty on supply-chain disruptions, and improving long-term domestic investment growth prospects. The tug of war between the virus and vaccine is still on. Can it de-stabilize the economy further, can it de-rail growth &#8211; it is tough to answer for now.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Inflation\"><\/span><strong>Inflation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>On the inflation front, wholesale price inflation (WPI) remains elevated while consumer price inflation (CPI) also remains moderate. Core inflation (excluding food and fuel items) remains sticky. While headline CPI still remains with the RBI\u2019s tolerance band of 4% (+\/- 2%) range, the supply side constraints may need constant monitoring.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=While%20headline%20CPI%20still%20remains%20with%20the%20RBI%E2%80%99s%20tolerance%20band%20of%204%25%20%28%2B%2F-%202%25%29%20range%2C%20the%20supply%20side%20constraints%20may%20need%20constant%20monitoring&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">While headline CPI still remains with the RBI\u2019s tolerance band of 4% (+\/- 2%) range, the supply side constraints may need constant monitoring <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=While%20headline%20CPI%20still%20remains%20with%20the%20RBI%E2%80%99s%20tolerance%20band%20of%204%25%20%28%2B%2F-%202%25%29%20range%2C%20the%20supply%20side%20constraints%20may%20need%20constant%20monitoring&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<p>On the currency front, the all-time high forex reserves could provide a cushion against abrupt INR moves \u2013 though near term pressures cannot be ruled out. Indian fixed income inclusion in global <a href=\"https:\/\/www.tickertape.in\/blog\/4-factors-to-consider-before-investing-in-index-funds\/?utm_source=blog&amp;utm_medium=gart&amp;utm_campaign=lksmiyr\">indices<\/a> could be a joker in the pack to watch out for.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=On%20the%20currency%20front%2C%20the%20all-time%20high%20forex%20reserves%20could%20provide%20a%20cushion%20against%20abrupt%20INR%20moves%20%E2%80%93%20though%20near%20term%20pressures%20cannot%20be%20ruled%20out.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">On the currency front, the all-time high forex reserves could provide a cushion against abrupt INR moves \u2013 though near term pressures cannot be ruled out. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=On%20the%20currency%20front%2C%20the%20all-time%20high%20forex%20reserves%20could%20provide%20a%20cushion%20against%20abrupt%20INR%20moves%20%E2%80%93%20though%20near%20term%20pressures%20cannot%20be%20ruled%20out.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Policymaking-%E2%80%93-the-way-forward\"><\/span><strong>Policymaking \u2013 the way forward&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>We expect a layered approach to the monetary transition process. To start with, we have already seen a liquidity normalization process underway. The RBI has been conducting 7, 14, 28-day Variable Rate Reverse Repos (VRRR) to ensure gradual normalization of liquidity. This has also led to a rise in yields especially at the shorter end. Towards the end of December, the RBI also announced a 3-day and 4-day VRRR \u2013 a precursor that they may want to see overnight rates closer to the repo rate (currently at around reverse repo rate).<\/p>\n\n\n\n<p>We expect this to be followed by a narrowing of the corridor \u2013 by hiking the reverse repo rate sometime in February 2022 policy. The next step would be to change the monetary policy stance to neutral (from current accommodative bias). Finally, a repo rate hike of 50 <a href=\"https:\/\/www.tickertape.in\/blog\/bps-meaning\/\">bps<\/a> as a base case in CY 2022 is what seems more likely at this juncture.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=The%20next%20step%20would%20be%20to%20change%20the%20monetary%20policy%20stance%20from%20accommodative%20to%20neutral.%20Finally%2C%20a%20repo%20rate%20hike%20of%2050%20bps%20as%20a%20base%20case%20in%20CY%202022%20seems%20more%20likely%20at%20this%20juncture.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">The next step would be to change the monetary policy stance from accommodative to neutral. Finally, a repo rate hike of 50 bps as a base case in CY 2022 seems more likely at this juncture. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=The%20next%20step%20would%20be%20to%20change%20the%20monetary%20policy%20stance%20from%20accommodative%20to%20neutral.%20Finally%2C%20a%20repo%20rate%20hike%20of%2050%20bps%20as%20a%20base%20case%20in%20CY%202022%20seems%20more%20likely%20at%20this%20juncture.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<p>We continue to expect the short-end of the curve to move up relatively faster as the market adjusts to this new normal. 10-yr G-sec benchmark yields too are likely to adjust higher as fresh supply kicks in the new financial year and apprehensions of a rate hike continue to linger. We could see a 10-yr G-sec breach of 6.50% and trade range-bound, with incremental ranges shifting on the higher side.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=We%20could%20see%20a%2010-yr%20G-sec%20breach%20of%206.50%25%20and%20trade%20range-bound%2C%20with%20incremental%20ranges%20shifting%20on%20the%20higher%20side.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">We could see a 10-yr G-sec breach of 6.50% and trade range-bound, with incremental ranges shifting on the higher side. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Ffavourable-investment-strategy-amid-accommodative-stance%2F&#038;text=We%20could%20see%20a%2010-yr%20G-sec%20breach%20of%206.50%25%20and%20trade%20range-bound%2C%20with%20incremental%20ranges%20shifting%20on%20the%20higher%20side.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Way-forward-for-fixed-income-allocations\"><\/span><strong>Way forward for fixed income allocations<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fixed income investments are a necessary element in one\u2019s financial portfolio from an <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-asset-allocation\/?utm_source=blog&amp;utm_medium=gart&amp;utm_campaign=lksmiyr\">asset allocation<\/a> point of view. The current yield curve is steep, with some flattening trend already underway at the front end of the curve. If one looks at the OIS (swap curve) it is suggestive of ~75 bps repo rate hike over the next 12 months \u2013 an indication that worst is almost priced in the current yields.<\/p>\n\n\n\n<p>With much of the negative news already being reflected in the current yield curve, the need to time an entry for fixed income investments may not be necessary &#8211; small jitters of course cannot be ruled out. The pace of hikes seem gradual, hence spacing out fixed income allocations across tenors could be a potent strategy in the current scenario. What one needs to keep in mind however is that <a href=\"https:\/\/www.tickertape.in\/blog\/volatility\/?utm_source=blog&amp;utm_medium=gart&amp;utm_campaign_lksmiyr\">volatility<\/a> is going to be the name of the game. Global cues may hog center stage and the developed world could be quicker in accelerating the pace of policy normalization.<\/p>\n\n\n\n<p>In Bollywood style \u2013 fixed income carry ko padkadna aasan hai aur mumkin bhi \u263a (it is easy and possible to reach the carry in fixed income). Thus chase the carry could be the fixed income theme for 2022. Stay safe and happy investing!<\/p>\n\n\n\n<p><em><strong>Disclaimer:<\/strong> Views are personal and do not reflect the views of Kotak Mahindra Asset Management Company Limited.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>CY 2022 is a year when excesses get weaned off and policy normalisation gains momentum. Read more about it all here.<\/p>\n","protected":false},"author":76,"featured_media":6311,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[8,1770],"tags":[16,1151,51],"acf":[],"modified_by":"Ayushi Mishra","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/01\/TT-6-Jan-Lakhmi-Iyer.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/6305"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/76"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=6305"}],"version-history":[{"count":6,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/6305\/revisions"}],"predecessor-version":[{"id":6957,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/6305\/revisions\/6957"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/6311"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=6305"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=6305"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=6305"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}