Mr. Dhawal Dalal
CIO - Fixed Income, Edelweiss Asset Management Limited
Mr. Dhawal Dala has over 20 years of experience and an MBA from Dallas University (USA). He has joined Edelweiss Asset Management Limited in the year 2016. He is responsible for the overall growth of fixed income assets through a healthy mix of retail and institutional clients. Before joining Edelweiss Asset Management Limited, he was the head of Fixed Income at DSP Black Rock Investment Managers Private Limited and led a team of Fund Managers managing fixed income assets. His role there was to expedite overall growth of fixed income assets, performance and client interactions.
Q. Should an investor be worried about inflation rising or growth slowing down because that is where it is headed to? In order to curb inflation, interest rates have to be hiked and that will have an impact on the growth rate going ahead.
Answer: While inflation is a serious concern for DM economies, India is in a better shape than DM economies fortunately. Indian inflation seems to have plateaued. We expect CPI to trend lower gradually from here and end FY23 with CPI below 6%. At the same time, India’s economic growth is expected to weaken in FY23 as compared to FY22 but still remain in top 5 economies in the world in terms of growth rate. We expect RBI to raise the Repo rate to 6% by Q4FY23 in order to curb inflationary pressures.
Q. The RBI governor is of the view that inflation is going to come down to as low as 4% in FY24. Do you think he is optimistic or he is realistic?
Answer: It is tough to forecast inflation one year down the road as there are lots of moving parts. Indian economy is susceptible to vagaries of crude oil and food prices. With crude oil prices trending lower due to global slowdown, CPI should trend below 6% in CY24.
That said, policymakers are keen to see CPI trending back to 4% - a level seen before the pandemic. However, we don’t expect them to use higher policy rates to achieve this target.
Q. Where should investors focus in fixed income?
Answer: Indian sovereign and AAA curve is likely to flatten going forward as RBI raise policy rates and push short-end yields higher while long-end remain supported by huge bidding interest from EPFO, Pension Funds, insurance sector. Recent talk of index inclusion for benchmark government securities have also improved sentiment.
We continue to believe that investors should invest in Target-maturity bond ETF / bond index Funds for their fixed income asset allocation. They can choose from the variety of maturity buckets that may be suitable to their investment horizon. However, they should try to remain invested till the maturity of the product in order to get maximum benefit and optimal tax-adjusted returns.
Q. You have been in the market for such a long time now. Did you ever experience any rough patches that caused you to lose your composure in the market, and does it still happen today?
Answer: Bond market volatility is gradually declining over the years as policymakers are mindful of the sentiment of market participants and try to communicate more and take less disruptive measures.
As a result, we are fortunate to see a gradual decline in volatility in the bonds in the last five years.
Q. How do you view the current debt market in light of your own experience?
Answer: We remain life-long student of the market. No two periods are comparable in our view. While history may be helpful in guiding you, each market condition is unique and its outcome may be unique as well.
The only common thread is to believe in India’s growth story and be an optimistic.
We strongly believe that India’s fundamentals remain strong as we are a consumption-driven economy. We are confident that bond yields will decline in India in the medium-to long-term as our economy maintains a solid growth path with prudent policy measures.
Q. What would be that one thing you want young investors to learn from your experience?
Answer: Be bullish on India and be a disciplined investor.