Rise in allocation to G-Secs prove a setback to debt fund managers

In August, 11.54% of debt assets were deployed in G-Secs against 9.01% in July

At a time when India's equity fund managers are having breathless phase amid uncomfortably higher volatility in the stock markets, worries for their debt counterpart is only looming large. Debt fund managers allocated 2.5% more in G-Secs in August in anticipation of interest rate cuts.

 

Thanks to the 'googly' bowled by RBI's new chief that income heads are finding themselves trapped as far as their investment decisions on government securities or G-Secs are concerned.

 

As reported earlier by Business Standard that returns from Gilt funds, which primarily invest in G-Secs, are at stake with central bank's rising rates; situation appears to be far more worrisome.

 

Expectations of rate cuts have propelled debt asset managers to raise their allocation to G-Secs at several years high at 11.54% in August, according to the statistics from the Securities and Exchange Board of India (Sebi). In July, allocation to G-Secs stood at 9.01%. Effectively, fund managers pumped in 2.53% more of debt assets in G-Secs.

 

Such a rise in exposure to government papers was significantly higher than what was seen in the previous months. All resulted as rate cuts looked quite likely. Moreover, over 90% of this allocations were made to securities for more than a year period.

 

Now, with RBI's repo rate hike, the investment call on G-Secs is pinching fund managers and they are rushing to reduce durations to not more than 2 years as yield curve is likely to hit investments if there is higher duration.

 

In absolute numbers, Rs 66,840.23 crore of debt assets were deployed in G-Secs in August. In July, the figures stood at Rs 54,443.62 crore.