Indian funds expect further government-bond sales after policy shift

Indian mutual funds expect further sales of government bonds following the Reserve Bank of India's shift towards tighter monetary policy, four fund managers told Reuters in a report published on October 12.

Funds recorded net government-bond sales of 378 billion rupees in July–September. They sold another 51 billion rupees in the three trading sessions after the rate increase. Reuters put sales since July at approximately $4.5 billion.

Mansi Sajeja of SBI Mutual Fund said funds were reducing exposure to longer-maturity bonds. Amit Somani of Tata Asset Management linked the adjustment to the central bank's concerns about broader inflation pressures and the prospect of further rate increases.

The five-year bond yield exceeded 7.05%, rising almost 70 basis points in two months. The ten-year yield approached 7.35%. Managers also cited the central bank's own bond sales, which reached 1 trillion rupees in September.

Funds are shifting towards shorter government and corporate debt. Axis Mutual Fund favours high-quality corporate bonds with maturities of one to three years. Bandhan Asset Management cut its weighted average portfolio duration from approximately 12 years to less than one year.