India fund managers buy T-bills, dump bonds as early rate cut chances vanish

Indian mutual funds will swap their government bond holdings for shorter-dated treasury bills since the hawkish commentary from most major central banks has ruled out rate cuts in the near future, fund managers said.

“After the focus on inflation from the U.S. and the Indian central bank, rate cuts are out of the picture for the time being and in such a scenario, three-month Tbills is the safest bet,” said Raju Sharma, head of fixed income at IDBI Mutual Fund.

Mutual funds have sold a net 124 billion rupees ($1.51 billion) worth of government bonds from June 8 to June 22, while purchasing T-bills worth over 256 billion rupees in the secondary market, Clearing Corp of India data showed.

During this period, the Reserve Bank of India held rates steady again but signaled monetary conditions will remain tight, and while the Federal Reserve also held steady, it said rates will have to increase another half percentage point by year’s end.

Funds have also remained active buyers of T-bills at primary auctions, market participants said, as they look to maximise their returns by adjusting their portfolios.

“Mutual funds have booked profits by selling long bonds and reducing the interest rate risk in the portfolios,” said Sandeep Bagla, CEO of Trust Mutual Fund.