Devang Shah

Dy Head – Fixed Income

Devang Shah is a fixed income fund manager for domestic funds managed by Axis Asset Management Company. He has over 14 years of overall experience in the fixed income markets of which 11 years have been spent in investing across duration strategies, and credit. He has been actively involved in ideation, sourcing and investment strategy for fixed income funds

Devang holds a bachelors of commerce from Mumbai University and was a gold medalist in financial management. He is also an associate member of the Institutes of Chartered Accountants of India. He has previously worked with ICICI Prudential AMC, Deutsche AMC & Pricewaterhouse Coopers.

Q. What is your outlook on the current debt market conditions and yield curves?

Answer: Bond yields have significantly gone up in the last year. Amongst others, key domestic reasons for this up move include the risks of a fiscal breach and bottoming of inflation. Global factors associated with rising global yields in the developed world and concerns over rising crude have further accentuated concerns of foreign investors. The RBI`s move to conduct OMO sales to the tune of Rs 90,000 Cr has also aggravated the situation.

We have seen an upward movement of 150 bps across the curve since Sep 2017. At this current juncture, we believe that the market is pricing in 50 bps of rate hikes till March 2019. Long bonds will continue to remain volatile on the back of rising crude prices and a possible fiscal breach in the current year. Short bonds currently trade with a 200bps spread over the overnight rates. 1-3 year bonds hence continue to look attractive from a risk reward perspective.

We believe that the macro environment in India is stable and do not see any risk of fiscal instability. Further, we believe that RBI would continue to focus on inflation and hence looking at the trajectory we believe that the RBI will hike rates by 50 bps by the end of the current financial year.

Q. Do rising fuel prices pose any challenges to same? How do you assess the inflation trend going forward?

Answer: Rising crude is likely to have a material impact to the economy from a BoP standpoint as India imports almost 80% of its total oil needs. However, the recent inflation prints have been well within the RBI`s mandate of 4% ± 2%. The RBI highlighted key risks to inflation in its latest monetary policy statement and minutes specifically identifying, increase in Minimum Support Prices of key crops and potentially some imported inflation thanks to oil and the Rupee. However, we continue to believe that inflation will remain well within the RBI`s band.

Q. The rupee falling below Rs.71 to the US dollar also made recent headlines. Which sectors will face the impact, positively or otherwise, because of same?

Answer: Our focus on the debt side has largely remained towards domestically driven stories with strong credit profiles across the ratings spectrum. Like our equity fund house view, we like the consumption theme. We have added selectively across auto ancillaries, cement, media in our debt portfolios. Further we have also liked a few annuity projects in the roads space and the power transmission space. Both these are government backed entities.

Q. Please throw some light on how foreign entities have been lately participating in the debt markets?

Answer: YTD we have seen FII redeeming ~ $6 billion from the debt markets in India since the start of the calendar year. We believe that as a large part of the currency move has happened, further incremental outflows are unlikely given the strong domestic macro environment and the high real rates (150bps) currently available to investors.

Q. What has been your duration and credit strategy in the current markets? How do you believe your funds present a better choice to investors?

Answer: Looking at the current market environment, we believe that the entire fixed income curve is pricing in a 50bps hike as mentioned earlier. Long bonds will continue to remain volatile on the back of factors mentioned earlier. Short bonds currently trade with a 200bps spread over the overnight rates. 1-3 year bonds hence continue to look attractive from a risk reward perspective.

In anticipation of the upward rate movement and liquidity tightness we had reduced our maturities in the last 3 months. In this current market sell-off we have returned to add duration selectively across our funds through a combination of 1-3 year corporate bonds and 3-4-year G-Sec & SDLs. Since the last 18 months we also selectively added credit to our portfolios. We link the credit cycle and the economic growth cycle and conclude that the credit cycle is likely to see an uptick.

As risk managers we apply the SLR (Safety, liquidity & return) concept to our investment process while managing all our funds.

Q. What is your advice to investors looking for superior returns in safer avenues? Which debt funds would you suggest them to invest in with medium to long term horizons?

Answer: Our overall fund house view on the debt space as stated above has been to look at shorter term investment strategies in the 1-3-year space. Roll down strategies are an ideal solution for investors looking to park funds with a 3 year or longer view. Axis Banking & PSU Debt Fund currently operates on this strategy and is ideal for investors looking to invest in highly rated instruments of banking companies and public sector undertakings. Coupled with better tax incidence and higher YTM`s in the current interest rate scenarios, investors are likely to benefit in the medium to long term.

Alternatively, credit funds with a shorter duration structures like Axis Strategic Bond Fund & Axis Credit Risk Fund offer investors a dynamic portfolio of highly rated securities and a mix of lower rated securities across the rating spectrum.


Disclaimer: Past performance may or may not be sustained in the future. Sector(s) / Stock(s) / Issuer(s) mentioned above are for the purpose of disclosure of the portfolio of the Scheme(s) and should not be construed as recommendation. The fund manager(s) may or may not choose to hold the stock mentioned, from time to time. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC)

Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. This document represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Product Labelling

Axis Credit Risk Fund
(An open ended debt scheme predominantly investing in AA and below rated corporate bonds (excluding AA+ rated corporate bonds)

This product is suitable for investors who are seeking*

  • Stable returns in the short to medium term
  • Investment in debt and money market instruments across the yield curve and credit spectrum.
Axis Banking & PSU Fund
(An open ended debt scheme predominantly investing in debt instruments of Banks, Public Sector Undertakings & Public Financial Institutions)

This product is suitable for investors who are seeking*

  • Regular income over short to medium term
  • Investment in debt and money market instruments issued by Banks, PFIs & PSUs.
Axis Strategic Bond Fund
(An open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 years to 4 years)

This product is suitable for investors who are seeking*

  • Optimal returns over medium term
  • Investment in diversified portfolio of debt and money market securities to generate optimal risk adjusted returns while maintaining liquidity

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

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