Where to invest in bonds? Ideas for 2023

The banking sector liquidity has come down significantly and credit growth continues to be robust at 17% levels. Further, deposit growth has picked up with nationalized banks increasing their deposit rates aggressively. This, as per experts, may make them incremental buyers in government securities and corporate bonds in the next financial year in the short and medium end of the yield curve. 

“The government borrowing will be concentrated in the long end of yield curve to reduce rollover risk in the system. Rates cuts should benefit the short and medium end of the yield curve. The 2-to-5-year segment is attractive due to higher accrual and scope for capital appreciation when rate cut cycle starts after one year. Investors can look to invest in short term, corporate bond and Banking and PSU Funds which invests predominantly in this segment,” said Murthy Nagarajan, Head Fixed Income, Tata Mutual Fund while sharing his outlook for 2023.

India CPI inflation has already come below the threshold level of 6% and expected to trend lower in the coming months. Therefore, RBI may go for a prolonged pause in rates, Nagarajan added.

“Indian debt investors should look to buy bonds along the middle of the yield curve as it would help tide over any volatility in the backdrop of upcoming heavy debt supplies and high interest rates,” Abhishek Bisen, head of fixed income at Kotak Mahindra AMC told Reuters.

Deepak Agrawal, chief investment officer of fixed income at Kotak Mahindra AMC told Reuters that they will continue to prefer mid-part of the yield curve (the 3-year–7-year segment) for government and corporate bonds, given the flatter yield curve, adding that since interest rates have gone up significantly during the year, they are only looking to increase buying longer-dated bonds gradually on the corporate side. 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.