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Govt move to buy investment grade debt securities positive step: Experts

The government's proposal to create a permanent institutional framework to buy investment grade debt securities is a very positive step for debt mutual funds, experts said on Monday.

Topics
Debt securities | Investment | bond market

Press Trust of India  |  New Delhi 

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Illustration: Binay Sinha

The government's proposal to create a permanent institutional framework to buy grade in stressed and normal times and to deepen the is a very positive step for debt mutual funds, experts said on Monday.

"To instill confidence amongst the participants in the corporate during times of stress and to generally enhance secondary market liquidity, it is proposed to create a permanent institutional framework," Finance Minister Nirmala Sitharaman announced in the Union Budget 2021-22.

The proposed body would purchase grade both instressed and normal times and help in the development of the bond market, she added.

Prathit Bhobe, CEO and MD, at Tata Mutual Fund said the measure to set up a body to buy bonds up to grade is a good step to help deepen and market making in corporate It is a very positive step for mutual funds.

"It is important to have continuous confidence of investors and participants in the bond market particularly during the times of stress. The proposed framework will increase liquidity across the bond market during normal as well as stressed times, this will benefit debt mutual funds," said Harshad Chetanwala, co-founder MyWealthGrowth.com.

The government move is extremely positive for corporate bond market. Assurance of liquidity will boost confidence in the debt market, Pankaj Pathak, Fund Manager- Fixed Income said.

In recent past many debt funds faced this problem of liquidity crunch and liquidity infusion by the RBI was not trickling down to the needy borrowers, he said.

"An institutional framework to address the liquidity concern will go a long way in the market development. This would also bring down liquidity and credit premiums and thus cost of capital for borrowers," he added.

Tejas Khoday, co-founder and CEO of FYERS is of the view that panic selling in corporate bonds scares people away really fast because of the fear of default. The proposed institutional framework will help improve the secondary market in the segment.

Vidya Bala, co-founder of Primeinvestor.in said the move would in the medium to long term help generate demand and liquidity for debt instruments and thus improve liquidity in the bond market.

"For mutual funds, as liquidity has been a key limitation in times of stress, this long-term measure can ease the pressure of dealing with illiquid instruments," she added.

Overall, experts have termed the Budget as growth oriented one.

Rohit Sarin, Co-Founder of Client Associates, Private Wealth Management said this is a growth focussed budget which is the need of the hour. The government has done well to bite the bullet of expansionary fiscal policy with 6.8 per cent fiscal deficit target in 2021-22 after 9.5 per cent deficit in 2020-21.

" This would bring in much needed investment in healthcare, manufacturing and infrastructure which shall show up in higher growth of the GDP in the years to come. This has been balanced with staying away from populist schemes and tinkering with direct tax structure as distractions," he added.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Mon, February 01 2021. 18:52 IST
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