In the first part of this 3 part series (Click Here), we carried equity market outlooks of over 40 champion IFAs from across 20 cities. Optimism on equity markets was clearly evident, across the country. In sharp contrast, our champion advisors seem to be a lot more guarded on their debt market outlook for 2014. We asked them 2 questions : (a) What is your outlook for debt markets for 2014? and (b) Which product segments look most promising now? Read on to understand how some of India's most successful advisors view debt markets and which product segments within debt they prefer for 2014.

Northern Champions

Rajul Kothari, Capital League, Gurgaon
We expect yield curve to steepen with short term rates falling in the near future. Long term rates may take a while to come off. Short term funds/others - with duration of 1.5-2.5 years seem to be the best bets now.

Dhiraj Mittal, CFP, Prime Capital Services Pvt Ltd, Delhi
Expect yields to remain flat. Medium term accrual funds are the best bet.

Mukesh Gupta, Wealthcare Securities Pvt Ltd, Delhi
Liquid, FMP and arbitrage

Major Ashish Chadha, Chadha Investment, Delhi
Outlook is terrible, we are doing liquid, arbitrage, fmp

Kapil Khurana, Amritsar
Yields will remain at around present level with upward bias hence completely NO to duration funds and only advising FMPS, accrual funds and liquids. Also, arbitrage funds selectively .

Ashwani Tiwari, CFP, MaxGrowth Capital, Jalandhar
I think shorter end of the yield curve i.e. Short Term and Ultra Short Term categories offer the least volatile proposition for the clients. Tactically some small allocation can be done to longer end but in general debt markets will be under pressure so it is much wiser to be on the short end.

SS Chilana, Your Wealth Advisor, Chandigarh
In debt funds, only short term funds look better

Ashish Modani, SLA Investment Centre, Jaipur
Interest rates should come down but pace may be very slow

Eastern Champions

Anindya Mandal, Ruby Financial Services Pvt. Ltd., Kolkata
For debt market our suggestion is to put one time money in Liquid Fund and start STP (Systematic Transfer Plan) in Long Term Gilt Funds for 12 months to 18 months. If one time investment then in Short term funds and the time frame is 18 months.

Bharat Bagla, Bees Network, Kolkata
Debt markets should stabilise in the 2nd half of 2014 but we feel a combination of liquid funds and fmps are most appropriate for clients

Pallav Bagaria, Brand New Day, Guwahati
Bullish on debt. Duration looks good

Vikash Agarwal, DNS Wealth, Rourkela
I feel debt markets will deliver good returns till 2015 as Equities will continue to struggle for bullish trend till 2015. If the UPA Govt. is back & once again the policies don't remain in place, then I believe debt to be a great investment option till next elections.

Debt products like Gilt, Liquid & Ultra Short term funds looks promising. Apart from these, one can remain invested in Short Term funds of duration less that 3 months to enjoy the debt market ride for next 2 years and also to take the advantage of regular changing economic dynamics.

Southern Champions

K Arun Kumar, AK Associates, Bangalore
Short term looks better off and moderate risk. Opportunities are best where the YTM across has moved up.

Shrikant Bhagavat, Hexagon Capital Advisors, Bangalore
Relatively less volatile market than 2013. Will remain in a laddered position till clarity emerges on inflation.

Shyam Sundar, Peak Alpha, Bangalore
With Persistent inflation, and therefore the lack of visibility of interest rate moves, Duration plays can be quite risky. We are advising our customers to stay at the short end of the curve and focus on accrual based returns. Fundamentally, our belief is that debt must be the safe and boring part of the portfolio.
Short term funds and liquid funds as a replacement for savings accounts

Deepak Chhabria, Axiom Financial Services Pvt Ltd, Bangalore
Debt has been the savior during last few years, barring the mayhem that we saw in bond/income funds post July 2013, by and large debt funds have generated decent returns. As long as inflation remains perched at 9-10% staying with short term funds following accrual strategy is advisable, generally during last quarter of FY yields remain high, FMP's should offer good rates. Once, RBI signals that rate easing is on cards one can consider getting into Bond/Income funds.

E Chandrasekaran, ECS Financial Services, Hyderabad
We expect debt market to be better from now on, as we foresee the Government to act more aggressive on inflation control and bringing down the rates to enable the growth.

Till, we see the effective measure and strong conviction, short-term funds and low duration funds are under our focus.

AK Narayan, A.K.Narayan Associates, Chennai
On Debt markets- what happens is that the next six months inflationary trend is going to get higher only-and whenever the RBI feels inflation has reached its peak, interest rates will start getting cut, maybe during the second half. So maybe at that time we will definitely get better returns from Income Funds and those kinds of accrual products in the debt segment. So it is better to be in debt funds as an asset allocation, as there is a very good possibility of making good money in the latter part of the year.

V K Sudarshan, Veekay Enterprises, Chennai
Debt market is very confusing

Maxie Jose, CFP, Affluenz Financial Services, Kochi
QE tapering and inflation could be a spoiler for fixed income space. Broadly we would opine that lower yield will be sustained over the short/medium term and there is favorable risk-reward across the entire yield curve. If the inflation eases, it could well be the end of any rate hikes which should augur well for the debt and equity markets.

Those with lower risk appetite it is most advisable to stick to accrual products while making small gains on capital if the interest rates actually head South. Those with longer horizons and higher risk taking capacities could enjoy some gains on duration play. We would also suggest that the tax free bonds in addition to higher coupon provide an excellent opportunity to take advantage of the duration without taking undue risk.

Western Champions

Mukesh Dedhia, Ghalla & Bhansali Securities Pvt. Ltd, Mumbai
Would expect inflation to not rise further, but not very sure how much it could decrease. Hence accrual schemes to be preferred over duration. Arbitrage funds should be looked at which are yielding over 9% tax free.

Hemant Rustagi, Wiseinvest Advisors, Mumbai
I expect inflation to moderate over the next couple of months. While the risk of negative impact on the debt markets on account of tapering program remains, a strong current account and healthy reserves may not prompt any rate action by the RBI. Broadly, the interest rates are likely to remain stable. My recommendation would be to go for income funds following accrual strategy and short term income funds. FMPs remain a good bet at the current levels for those who may prefer to get stable returns and benefit from double indexation benefit.

Nikhil Naik, Mumbai
As for Debt market-we tactically allocate our money into long-gilt funds, but generally continue to remain in accrual products only

Roopa Venkatakrishnan, Mumbai
The debt market looks promising, like Short Term Funds and Duration Funds, but the journey is going to be volatile and the investment horizon has to be two years and not one year. Tax Free bonds at this point of time are also very good for the Investors.

Sangeeta S. Jhaveri, Prescient Financial Solutions, Mumbai
With inflation remaining high chances of the rate cycle reversing soon are slim. Post the events of July 2013 there is an aversion to duration products. Accrual funds, FMPs and tax free bonds offer good alternatives.

Mona Faikh, Allegiance Advisors Pvt Ltd, Mumbai
We see debt as good avenue, particularly short term funds.

Gajendra Kothari, Etica Wealth, Mumbai
Debt markets should should do very well, considering we are very close to the all time high in 10 yr Gsec rates. I think long term bond funds / Gsecs should be a sweet spot to be in.

Milind Chitnis, Chitnis Financial Planners, Mumbai
We expect high interest rate regime to continue for some more time. We generally advice only accrual debt funds to our clients. This is more a function of the kind of clients we have, rather than call on interest rate movement

Hari Kamat, Hari G. Kamat's Investment Avenue, Panjim
Invest in funds focused on accruals.

Rajesh CHHEDA, Registered Investment Advisor, Finance Factory, Panjim Goa
The recent inflation indexed products that have been announced look promising

Bharat Phatak, Wealth Managers India Pvt Ltd, Pune
In the current situation, I feel accrual scores over duration. However, if one sees higher levels on long bonds, coupled with early signs of reduction in fiscal deficit & inflation, exposure to duration will need to be considered. I am not in favour of credit risk.

Amit Bivalkar, Sapient Wealth Advisors and Brokers, Pune
I think one can expect a return between 8.5% to 10 % on debt funds, which make them more attractive than FDs on a post tax basis. With a two-year perspective, we clearly have to look at Income funds and with a one-yr perspective , one can look at going to short-term funds.

V. Vijayarangan, Vijay Financial Consultants Pvt Ltd, Pune
We believe 2014 will be more volatile than the year 2013. But we can use this volatility to invest in long term bonds and we also suggest investment through dynamic bond funds as compared to regular bond fund where the fund manager has the flexibility to manage this volatility. If investors have a short term investment horizon they should look at short term funds and fixed maturity plans.

Rashmin Avinash Deshpande, Insynch Wealth Management LLP, Pune
Short term debts funds are attractive and in the long term space, corporate bonds.

Jignesh V. Shah, Surat
I believe debt markets are good as long as they beat the bank FD rates post tax for my clients. I focus on accrual portfolios for my investors with less volatility and predictable returns.

Raj Talati, CFP, ABM Investment, Vadodara
As inflation moves in cycles, I think it has seen its upward trajectory in last four years and will start moderating, because of good monsoon , base effect, steady oil prices and lower current account deficit. The only worry is on the part of fiscal deficit. Being an election year it will take its own time for new government to frame its policies because of which its unlikely that inflation will come down drastically.

Bhadresh J. Jhaveri, Jhaveri Securities Ltd, Vadodara
With inflation remaining sticky and the fears of further QE tapering, debt market will remain volatile. Short Term to Medium Term funds look promising for the time being.

Siddharth Shah, Master Investment Broker, Shalibhadra, Ahmedabad
Investors will earn from Duration funds. After seeing the performance there will be buying spree from investors in Debt fund. However, MF distributors should be careful as yield will go down, new investors earnings will be less attractive.

Killol Ringwala, Safe Assets, Ahmedabad
We are positive for debt market for the year 2014. Accrual and Duration products looks promising.

Aasit Shah, S&A Wealth Managers, Ahmedabad
Interest rates seems to have peaked out. Should park funds in FMPs & good corporate bond funds.

Pramod Saraf, Swan Finance Ltd, Indore
We are near to the top levels in terms of G-Sec yields. With public sector banks getting conservative in their lending to corporate sector on the back of lower capital adequacy and may be expected to divert their deposits to government securities. This will have a positive impact on government securities.

However, there could be pressure on G-Sec yields in the short term coming from rupee depreciation and increase in international oil prices which is showing renewed signs of strength. Presently, our strategy is focusing on preferring duration management over credit exposure. We feel that the debt portfolios should be positioned conservatively on credit exposure as we believe stress on corporate balance sheet is not yet over. Additionally, banks are constrained to adequately fund fresh corporate borrowings which may keep the pressure on spreads.

Overall, we believe that the year 2014 will be even more volatile than the year 2013. This volatility should be used to add duration (long term bond funds) as yield move higher. However, we recommend such duration exposure through dynamic bond funds as compared to regular bond funds because in dynamic bond fund the fund manager has the flexibility to tactically manage duration to benefit from volatility. If investors have a short-term investment horizon, they should look at short-term funds and Fixed Maturity Plans. In case investors have medium- to long-term investment horizon; they can start investing in long-term debt funds towards end of the first quarter of 2014.

What do you think?

Once bitten, twice shy seems to be what's on our champion advisors minds as far as debt markets are concerned. After seeing that inflation and high rates persisted through 2013, belying the forecasts of many experts, they don't seem to be in a hurry to declare the beginning of a big bull market in bonds. Caution is the watchword, preference for shorter duration, accrual based strategies seems to come out very clearly. Tax free bonds and arbitrage funds also seem to have attracted a fair amount of advisor attention.

What is your view? Would you agree that being cautious is the right approach? Or do you think we run the risk of being over cautious and missing a potential bond market rally in 2014? What are you advising your clients to do in the fixed income space this year? Share your thoughts, just as some of the leading advisors have, for the benefit of the wider distribution fraternity, by posting your views in the box below - its YOUR forum!

Share this article