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Mr. Shah has more than a decade long experience in researching and analyzing investments, making investment decisions. He is equipped with extensive background in asset management – most of that being in fixed income markets. A masters in Finance from Mumbai university, before joining Peerless Mutual Fund, Mr. Shah was associated with Derivium Capital on their fixed income desk.
1) After the October 29 monetary policy, how will short-term funds be effected? Should investors prepare themselves for a slowdown in returns, compared to the returns witnessed between the July-October period?
The recent policy was on expected lines. Additionally, RBI has made it very clear that, it will very closely monitor the inflation scenario (especially CPI) while at the same time be mindful of evolving growth dynamics. However, we feel, that we are close to the peaking of the rate cycle for current fiscal, the only risk to this scenario is continuing higher inflation which could make RBI take a hawkish stance. The RBI’s CPI inflation guidance indicates that CPI is likely to be above 9% for the rest
rest of the year , and hence one hike cannot be completely ruled out in the December policy. More than the slowing returns, reduced volatility will be a defining trend for markets. Investors will greatly appreciate that from here on risk reward ratio will be slowly turning back in their favour. Having said that, it will vary from portfolio to portfolio depending on the composition in individual scheme. Generally speaking a low duration short term fund would be great choice, for the higher carry and capital appreciation opportunities that it will provide, if its composition is rightly balanced with quality assets and optimum duration.
2) What sort of instrument mix will you be focusing on in the near term to derive alpha? Could you please share the rationale for this with us?
Liquid assets, top quality credits and appropriate duration suiting individual scheme-these are the three basic timeless tenets that are to be kept in mind while creating instrument mix. The alpha generation is a factor of getting the combination of these three factors right, on a sustained basis. On a simplistic note, proper duration management helps you outperform the market depending on the interest rate movement, quality credits provide yield enhancement to the returns without incurring greater risks and liquid assets provide a cushion and bring necessary balance.
3) Is it time to shift focus towards duration products? In your opinion when are we likely to see the first round of interest rate cuts? Is there a trigger that investors should watch out for?
More than the trigger, a regular phased investment from hereon will be more helpful to the investor who is coming in from a medium term perspective. Timing the markets is not the sure shot way to make money and is fraught with multiple risks. However, as I said earlier, except for an unacceptable/elevated inflation number, I don’t foresee any more rate hikes and we seem to be near to interest rate cycle peak. It is pertinent to note here that this automatically does not translate in to rate cuts. Rates are expected to remain in this range for some period of time and rate cut scenario is still some distance away. Hence, smart money should start creating positions based on this scenario-suiting individual risk reward metrics and make regular additions to those positions.
4) Could you please share with us the strategy behind Peerless Flexible Income fund?
Peerless Flexible Income Fund is a fund which focuses on dynamic duration and credit spread management, depending on interest rate outlook. It is for investors with medium to long term perspective who are fine with intermittent volatility in quest for higher returns. It works on the principles of high quality credit with a longer tenure, albeit active duration management.
5) Could you please share your views on the below AAA rated space of the debt market? There is considerable position built in this space in some of your funds, how should investors perceive this?
Sub-AAA is an extremely interesting space. Many times credit rating do not fully capture the potential credit-worthiness of the company. There are number of credits in that universe which display resilience and strength of AAA asset but have still not got recognition from market for that. Detailed study of sub AAA space throws up great companies with solid fundamentals, great business models, and reputed management. We do a deep and holistic bottoms up analysis, in which numerous analytical parameters includes multiple rounds of management meetings, studying business models, sensitivity analysis of economic cycles, where they are operating in and of-course the basic filters of financial ratios.
6) How should investors structure their portfolios in preparation for the U.S. monetary stimulus tapering?
The issue is when rather than if. US monetary stimulus tapering is a surety-otherwise the imbalance created by its continued existence at present pace will create even bigger problems. Investors are adviced to pay equal attention to local factors at play. Creating a taper neutral portfolio is practically difficult since in today’s globalized markets, everything is inter-linked and inter-connected. Having said that, the 2 most important things to remember are regular investing and proper asset allocation depending on individual risk/reward appetite.
