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Raghav Iyengar: We have one large risk which is inflation, because inflation tends to spike interest rates up and unfortunately a lot of India’s inflation is imported. So, it’s very difficult to sort of pull up numbers on it and that’s largely because of oil and gold.
So, any call that you take on fixed income, you have to look at oil prices, you have to look at gold prices, you have to see a bit of the external environment because we do import inflation, 80% of our consumption needs for oil comes from abroad.
As of now things seem to be quite benign, I think, the world is slowing down much faster than expected but there is obviously the risk of the U.S. doing far more rate hikes than what it is. The U.S. is the global money supplier today, so whatever the U.S. Federal Bank does, will have an impact all over the world.
My sense is in India, it would be a bit less muted, because we are largely a domestic economy even today. So, in that sense, we are in a bit of a sweet spot. I think, the pain of the fixed income has already, to some extent, passed.
We have had a crazy period over the last six months where interest rates have gone up in some categories by almost 2.5-3% and I am sure many of your viewers are seeing that on their EMIs today. I think the EMIs which used to be sub-7%, have now crossed 8% comfortably right now, in fact trending more towards 9%.
But given all this, I think, fixed income is in quite a sweet spot because our sense is that the worst is behind us and like Amit pointed out if you are getting 7.5% on a government security which is the epitome of safety in India, I think, it’s too good to be true at this point of time. So, one should look at fixed income.
You remember Niraj, last year at this time, we spent a large part of our time talking about hybrid funds and they have done quite well for the investors. So, that is the reason why I am thumping the table and saying that you need to put more money into fixed income.
I think, the biggest risk for an investor is to make sure that he is matching his or her investment horizon with the duration of the fund. That is very critical, don’t get carried away by past performance. Right now, I think, people are getting carried away negatively because past performance is quite bad. If you look at any spreadsheet, returns are 2-3-4%, people say I get much better returns in other things. But that is backward looking. I think, you have to take a forward-looking view. My sense is smart investors have already started coming in the last couple of months. We have seen a lot of fresh inflows starting to come in and thanks to things like your show, hopefully more people will come.
Amit Bivalkar: One point what I would like to add is, not only crude and gold, but today you look at any person, like if we look at you, Raghav and me, whatever we are wearing are all international brands which are actually imported.
Nothing is made in India. iPhone or maybe it’s a tie or it’s your spectacles or whatever and every time we see that consumption moving up in India, forget about crude and gold, we are actually getting dollars to go out of the country for importing these goods.
The more and more consumption goes up, you will see more and more imports which will have inflation in India, and which will put pressure on your interest rates. So therefore, it is very critical to have a look at that as well.
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