PGIM India MF remains overweight, with bias for long-duration govt bonds

PGIM India Mutual Fund continued to be overweight, with a bias for long-duration Indian government bonds, despite a sharp jump in yields after a weaker majority for Prime Minister Narendra Modi's ruling alliance.

"We think there will be some easing in the monetary policy towards the end of the year and also the demand-supply dynamics are favourable. Hence, the bias towards longer duration," Puneet Pal, head of fixed income, told the Reuters Trading India forum.
 

Indian benchmark bond yield was around 7.03%, after witnessing its biggest single-session spike on Tuesday, as Modi's Bharatiya Janata Party-led alliance won 293 seats, sharply below exit poll projections, leading to the selloff.
 

Pal said he did not expect any fiscal slippage risks after the weaker mandate, with the new government likely sticking to the 5.1% deficit target that was announced in the interim budget. Any fiscal concerns may arise only in the next financial year, he added.
 

"Before yesterday, the markets were expecting a lower-than-5.1% fiscal deficit in the final budget. Now that optimism has gone but I do not think the fiscal deficit will be higher than 5.1%," Pal said.
 

He expected the benchmark bond yield to trade in a 6.95%-7.20% range over the next three months.
 

Regarding increased focus on schemes, Pal said the "government is unlikely to be reckless" in terms of spending.
 

He also ruled out the possibility of significant foreign capital exits from government bonds following the election result, but said prolonged higher rates in the United States might trigger some capital outflows.
 

Indian bonds are set to be included in JPMorgan's emerging market debt index from the end of this month and markets expect passive inflows worth around $25 billion.