'Downward shift in yield curve likely'

MANAGER SPEAK/ Nilesh Shah, chief investment officer, Prudential ICICI AMC

On the debt side the fund has maintained a short- to medium-maturity profile, aiming to provide stable returns with low volatility.

The portfolio mainly consists of one- to three-year corporate bonds, money market instruments and short-maturity gilts with a small exposure to medium-term gilts. The strategy combines higher accrual income and low volatility against stable to higher interest rates.

The fund has not fully exploited its exposure to equities. What is your view on the equity market?

We are bullish on the equity market over a long-term period due to the excellent fundamentals of Indian economy. However, our MIP is a conservative product.

We invest in large-cap liquid equities with a view to generate long-term capital appreciation. We also try to protect down side wherever possible.

How do you explain your preference for large-caps?

We aim to generate returns from large-cap liquid stocks. Mid-caps are a high-risk, high-return arena and we would not like to over-expose ourselves there.

What is your view on interest rates?

The RBI is likely to begin the process of bringing the repo rate to a more neutral level and the yield curve appears to have priced this in with the sharp upward shift over the last six months. We expect this process to continue in the short term.

However, with inflation expected to come off next year and the maturity of the MSS programme adding liquidity in the system, we could see a downward shift in the yield curve.

However, in the longer-term, outlook is turning positive and the risk-reward ratio has turned in favour of investors with a long-term horizon.

Though there may be some pain in the short term, a gradual entry is recommended in debt funds with the 11-year market benchmark above 7 per cent.