Puneet Pal advises investors to brace for RBI rate cut, falling bond yields in April- Here’s what they should do?

Indian bond market remains steady as investors anticipate a potential rate cut by the Reserve Bank of India (RBI) in April, following a series of aggressive liquidity measures. Puneet Pal, Head-Fixed Income at PGIM India Mutual Fund believes that with an expected sub-4% CPI print, the Monetary Policy Committee (MPC) is likely to lower rates in its upcoming meeting.

“The RBI has taken aggressive and proactive steps to augment domestic liquidity, and given the likelihood of a sub-4% CPI print this week, we expect another rate cut in the MPC meeting in April,” he said in a note.

Pal expects further steepening of the yield curve starting April, supported by year-end buying from insurance companies and institutional investors. While bond yields are expected to remain range-bound until March-end due to profit booking, the anticipated RBI rate cut and liquidity measures could drive bond yields lower in the new fiscal year.

“We believe that there is a very high probability of yields falling sharply at the beginning of the new financial year in April, though till March end profit booking from banks will continue, leading to range-bound movement in yields,” stated Puneet Pal.

During the past week, Indian bond yields remained stable, with the benchmark 10-year bond yield dropping 4 basis points to 6.69%, down from 6.73% the previous week. The 30-year bond yield outperformed, falling by 5 basis points, while the rest of the curve saw a 3-4 basis point decline.

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