Mr. Shriram Ramanathan
Mr. Shriram Ramanathan
Head- Fixed Income
Mr. Shriram Ramanathan oversees the management of assets across various fixed income funds. He has been with the Investment Management business since June 2012 and has over 15 years of experience in fixed income markets.
Prior to joining the Investment Management business, he was Portfolio Manager at Fidelity (FIL) Fund Management. In his previous roles, Shriram was managing the Global Emerging Market Debt (Asia) at ING Investment Management Asia Pacific in Hong Kong for about 5 years. His earlier assignments were with Zurich Asset Management Company in fixed income research and with the Treasury department of ICICI Bank, where he started his career in investments in 2000.
Mr. Ramanathan is a Chartered Financial Analyst and holds a Post Graduate Diploma in Business Management from XLRI Jamshedpur and an Engineering degree from the University of Mumbai.
Q.What is your view on the interest rates going forward? What events do you feel would be critical in defining its broad direction?
Answer: Global repricing of Developed Market tightening and oil price volatility are likely to be continuing medium term headwinds for our domestic bond markets in FY19. Along with that, the markets have recently had to deal with the various implications of the ongoing banking crisis, one of them being lack of appetite for government bonds by banks. This is the reason the bond markets sold off (yields moved higher) the way they did over the past few months.
FY19 is likely to see wild swings in market expectations about RBI action, given that we are at an inflexion point in terms of RBI monetary policy action, with the next move likely to be a hike. However, the RBI has been fairly cautious and measured during the rate cutting cycle, and hence we also believe that it will have enough time and space to maintain a stable interest rate regime for longer. Accordingly, we expect policy rates to remain stable through CY2018, and a possible hike somewhere in CY2019 depending on the way the election buildup impacts macro-economic decision making.
Q.How has been the investment flows into debt markets in recent times? Where has been the money primarily moving?
Answer: While FY17, on the back of demonetization, saw a huge spike up in debt mutual fund inflows across various categories, FY18 has turned out to be surprisingly very muted, with accrual (credit oriented) funds being the only significant recipient of net flows (of ~ Rs 25,000 cr) . Pure duration funds (income funds, dynamic bond funds etc) have seen large outflows on the back of their underperformance, with that segment becoming a much less relevant category for MFs in the overall scheme of things.
In FY19, we expect debt flows to improve, especially in the ultrashort and short term categories as the carry in these segments has become more attractive, while we expect an acceleration of flows into credit oriented funds, as investors are better rewarded for the risks due to the higher portfolios yields. The credit fund universe AuM, which currently stands at Rs. 1.5 lakh cr, can potentially become a Rs. 2.5 lakh cr segment over the next 3 years – making that the most relevant non-liquid debt category for mutual fund houses.
Q.What important factors should investors consider before investing into debt funds?
Answer: Risk appetite and investment horizon are the two most important factors while investing into any fund, including debt funds. Investors need to realise that debt funds are of many types, and have varying degrees of volatility and risks. Risk can be of three broad types viz. liquidity risk, interest rate risk and credit risk. Investors need to be clear about which of these risks they can stomach, and which they do not desire. Accordingly, they should choose funds to invest in. Now, with all fund houses aligning themselves to the newly prescribed fund categories laid down by SEBI, transparency will improve significantly and investors will be better able to match their risk appetite with the fund categories they choose to invest in.
Q.What is your strategy for managing the credit risk while looking for attractive opportunities?
Answer: At L&T MF, we follow a bottom up analysis approach giving lot of attention to the cash flow generation ability and debt serviceability on standalone basis. We firmly believe that a robust and process oriented credit risk approach of assigning internal credit rating to all the issuers helps on 3 important fronts:
Overall risk management by keeping the internal limits linked to internal ratings.
Right pricing (yield and credit spread) of the instrument.
Active credit monitoring to give heads-up for any positive or negative credit developments
While we focus a lot of our attention on identifying upgrade candidates and adding performance alpha, we believe it is even more important to ensure that we are able to protect our investors by avoiding exposure to companies at risk of serious downgrades of more than 2 notches or slipping into BBB category.
Q. What is your fund house strategy for investment in the current market scenarios?
Answer: While we were significantly underweight duration through most of last year, we have moved to a neutral position more recently in March when 10 year G-Sec yield hit 7.75% and short end rates too moved up sharply. We expect G-Sec yields to remain volatile through FY19, and swing between 7.25-8% range, providing good tactical trading opportunities, although we do not believe the risk-reward is favorable for a strategic long duration position given various headwinds.
Having said that, apart from G-Sec market, we believe the upward move in interest rates in the 1-3 year corporate bond segment actually makes it quite attractive for investors to benefit from the better carry that these segments earn, with relatively little risk of rate hikes by the RBI atleast in CY2018.
Q. What would be your advice to a purely debt investor for different time horizons of say over 1 year, 3 years and 5 years. In what products /durations should he invest in?
Answer: With yields in the short end of the curve having moved higher and with bank MCLRs expected to move up as well, we believe accrual funds which invest in good quality AAA and AA rated bonds in the 1-3 year segment can provide attractive carry for investors.
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