Positive real yields on India govt bonds visible, says SBI official

The inflation-adjusted returns will accrue even if inflation does not ease to the Reserve Bank of India's 4% target and stabilises around 5%, he said

Indian government bonds across maturities are likely to offer a real, or inflation-adjusted, return of 2 per cent, making for attractive investment opportunities, India's largest mutual fund's chief investment officer for fixed income assets said on Tuesday.
 

"We have increased allocations to Indian government bonds over the last six months," said Rajeev Radhakrishnan, CIO fixed income at SBI Mutual Fund.
 

Real yields should be the main factor and not capital gains, said the CIO, who manages debt assets worth 2.03 trillion rupees ($24.33 billion).
 

The inflation-adjusted returns will accrue even if inflation does not ease to the Reserve Bank of India's 4 per cent target and stabilises around 5 per cent, he said.
 

The government's focus on lowering the fiscal deficit and the eventual start of a rate-easing cycle by the central bank would aid in the medium to long term, he said.
 

He expects the current levels to be an attractive entry point and sees the 10-year benchmark yield in the 7.00 per cent-7.30 per cent range until the easing cycle starts, and provided brent crude remains in the $85-$90 per barrel range.
 

He does not expect the benchmark yield to rise beyond the 7.25 per cent-7.30 per cent band.
 

Bond yields have risen this month, tracking a rise in oil prices as well as U.S. peers, as investors pare rate-cut bets.

Radhakrishnan does not expect any rate cuts in the current financial year that started on April 1.
 

If investors have the stomach to digest slightly higher volatility, they should opt for the longer end as the benefit of a fall in yields would be much more pronounced there, he added.
 

"The story is very compelling to go for government bonds, and higher duration could also give capital gains at a later stage."