Mr. Kaustubh Gupta

Co-Head - Fixed Income Aditya Birla Sun Life AMC Limited

Mr. Kaustubh Gupta is the Co-Head of Fixed Income at Aditya Birla Sun Life AMC Limited (ABSLAMC). Kaustubh brings with him 17 years of extensive investment experience having worked in various capacity of treasury finance, liquidity management and fund management. As Co-Head, Kaustubh leads the overall fixed income portfolio management.

Prior to joining ABSLAMC in 2009, Kaustubh worked with ICICI Bank for 5 year in the Asset Liability Management team.

Kaustubh is a Chartered Account and CFA (Level 2) by qualification.

Q1. How does 2024 look up for the Indian debt market? What are the key factors that will drive inflows?

Ans: The entire yield curve between 1-3 year is available at 7.75% - 8.0%. Given our macro views, these rates are unlikely to inch up much higher. Nominal yield curve is elevated and, on a risk reward basis fixed income looks like an investible asset class beyond the asset allocation principle. Further this year India G-sec market will get large allocation in JP Morgan global bond indices which could pull benchmark yields lower. Thus for 2024, we think time for dialling in active duration risk through short-term funds (Short term fund, corporate bond fund, and Banking & PSU fund) is apt now.

Q2. How would you rate the interim budget on a scale of 1-10 and why?

Ans: This year budget can be simplified as “ Bond budget”. Not only government has stick to path of fiscal consolidation, they have surprized market, but much lesser borrowing number compared to consensus. We think this year’s interim budget is non inflation and primary targeted to achieve macro stability in uncertain global macro backdrop for global economy. Thus, we would rate budget 9/10.

Q3. In the Interim Budget 2024, the government has given a lower-than-expected fiscal deficit target of 5.1% of GDP for FY25 and even lower 4.5% by 2025-26. How do you interpret this?

Ans: We would read this budget numbers to conservative, credible and focused upon prioritising macro stability over short term push to support growth.

Q4. For five consecutive policy reviews in 2023, the RBI chose to hold rates, citing inflation threat. Is there any possibility of interest rate softening in 2024?

Ans: We expect headline rates to remain status quo for most part of 2024 with possibility of a shallow rate easing cycle at the end of 2024 unless growth slows down to sub 6%. As global central bankers ease rates, RBI will respond to this with liquidity infusion measures and regulatory relaxations but most of them will be back ended.

Q5. Can you discuss your approach to select debt securities in the current market, emphasizing liquidity and credit quality?

Ans: Debt markets face three types of exposure: credit, liquidity, and interest rate risk. Although it is important to look at these in isolation to identify individual risk, but as active debt manager we also use interplay of all of them on the overall investment strategy of funds. Assessment of various probable economic scenarios impacts the kind of asset mix portfolio construction will be guided through. In current scenario, we think liquidity play and duration play is going to give most of fixed income returns to investors. Accordingly, we are overweight G Sec across our portfolio and running higher duration. Over course of next 3-6 months, if our view plays out we will switch to AAA corporate bonds to benefit from liquidity opportunity as well. We continue to remain underweight credit spreads because it is priced richly.

Q6. In the wake of budget 2024, what kind of investment strategy do you suggest for bond investors?

Ans: Time is ripe for adding duration to fixed income portfolios. With in that actively managed duration funds will do well to play duration on liquidity infusion play. We are also coming out with Index fund opportunities themed around Bond indices inclusion at minimal expense which will invest only in FAR securities. These will be managed passively and could turn out to be the good risk adjusted capital gains opportunity. Short-term investors should look to invest in money market, ultra-short-term funds & low duration funds over liquid funds.