Interest rates could ease by 50-75 bps- Ms. Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund

Perspective on fixed income markets for the year 2014 and outlook on 2015 on the debt markets

Year gone by:

- CY 2014 has been quite fruitful for fixed income markets. Yields tapered down on expectations of moderation in inflation

- CPI decelerated much faster than what street expected, leading to pre mature rate cut expectations

- RBI took cognizance of the falling trajectory of CPI and acknowledged a possible need for a rate action

- Liquidity by and large was orderly, keeping shorter end of the yield curve supported

- Bond and gilt funds were big beneficiaries of such a scenario posting double digit returns for the investors

What to expect in the New Year:

- Commodity led disinflation to continue in 2015

- In India, 2 key commodities drive our CAD as also inflationary expectations to some extent - oil & gold. Trend for these 2 commodities likely to be benign, subject to no major shocks. Gold demand could pick up a bit compared to last year given the scrapping of 80:20 rule

- Case for benchmark rate easing could happen in CY 2015

- Interest rates could ease by 50-75 bps

- Yield curve across tenures likely to moderate..

- Duration funds likely to do well in the fixed income pack

Key risks to watch out for:

INR - the strengthening of the USD could be some pressure on INR going forward

US hiking interest rates could well be a reality in CY 2015, though latter part of the year

FII flows which aided CY 14 could be a tad under pressure if INR continues to be wobbly.

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