Indian mutual funds return to govt bonds as inflation, rates spikes

Indian mutual funds are flocking back to government bonds as inflation is expected to have peaked, leaving limited room for further rate hikes that, in turn, is leading to sharp decline in yields, fund managers said.

“Market is expecting inflation to have peaked and slow into 2023, while growth headwinds have picked up into 2023, especially in the western world,” said Vikram Chopra, a fund manager with DSP Investment Managers.

This trend could persist as mutual funds had limited exposure to government bonds over the last few months after the Reserve Bank of India (RBI) aggressively raised interest rates to tackle steep inflation. The central bank has raised rates by an aggregate 190 basis points since May.