How many of you are hoping to get 17% on Gilt funds this year also? I am not saying whether it is possible or it is not possible, just asking. I have known only one thing – a year of 17% return is rarely FOLLOWED by a 17% year…and that is exactly why even in equities we should not expect a 27% year to be followed by a 28% year. It rarely happens – therefore the uncertainty.

Let us look at reasons why INTEREST RATES may not go down in a hurry:

1. Last year we got lucky with oil: Namo’s luck with oil pricing allowed him to free energy pricing, but this year gas and oil could firm up. Luck cannot be repeated.

2. Huge inflows into equity AND debt: a huge amount of money flew into India – this year the trend may be reversed.

3. The above 2 points kept the US $ at 63…this year if there is some withdrawal (or just the incoming money dries up) …the $ may reach say 68. No reason why this cannot happen.

4. A drought like situation – or a big monsoon deficit will take a toll on the inflation ….

5. Oil prices going up may create demand for subsidising energy?

6. All fund managers are predicting a big interest rate cut – frankly I do not see a very big rate cut coming. A lot of your portfolio should have a short -2 year kind of Mod duration….

be happy….i can also give 12 reasons why interest rates HAVE TO GO DOWN…lol

 

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  1. If inflation rate stays around 5% or lower, then there is a case for repo rate going to 6.5% – that is a 100 bps cut, over a period of time.

    Let’s hope inflation remains low. High inflation distorts financial planning.

  2. Subra sir,
    Didnt understood this part:
    “A lot of your portfolio should have a short -2 year kind of Mod duration….”

    Kindly explain.

    Regards,
    aditya

  3. Assuming the most bullish scenario (without making ridiculous assumptions), I dont think gilt funds will give more that 13-14% return in the year ahead. More likely, it will give around 8-10%. This assuming one is running a high duration portfolio in the gilt funds (Mod duration of 6+).

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