The corporate bond fund category of mutual funds has recorded net outflows of Rs 21,194 crore in the last 3 months. This was the fifth instance of net outflows in the category in the last seven months with the largest sell-off of Rs 11,473 crore in the month of January.
Besides corporate bond funds, short duration, medium duration and medium to long duration funds have also seen net monthly outflows in the last three months. Anurag Mittal, head – fixed income, UTI AMC said that the outflow in corporate bond funds broadly in line with other duration-oriented segments due to profit booking by investors who entered over the last 1–2 years to position for the rate-cut cycle and have already realised meaningful capital gains. Such investors are now reallocating towards shorter-duration strategies such as ultra short duration and money market funds.
Moving to Shorter-Duration Funds
Mittal expects RBI to look through one-off supply-side inflation shocks and remain guided by the underlying durability of inflation, which would strengthen the case for a lower-for-longer policy stance. He recommends moderate duration funds once the geopolitical uncertainty subsides.
However, Abhishek Bisen, head- fixed income, Kotak Mahindra AMC maintains a positive medium-term outlook for the corporate bond category, as corporate balance sheets continue to be strong, there is moderate leverage levels and manageable refinancing risks. With limited direct exposure to global conflict zones, he expects domestic corporates to continue to benefit from stable demand and improving cash flows. “The RBI has maintained sufficient banking system liquidity supporting credit transmission. In this environment, corporate bond spreads offer relatively attractive spreads,” he added.
Volatility vs. Corporate Stability
Pratik Shroff, fund manager – fixed income, LIC Mutual Fund said that challenges like tariff pressures, rupee depreciation, and a higher G-Sec calendar led to sharp rises in corporate bond yields. Investors lack confidence to invest in corporate bond funds during periods of volatility and uncertainty in the markets, which has led to outflows in corporate bond funds. Further, he said that liquid funds became more attractive in recent months with higher CD rates, which led to a shift away from corporate bond funds.
With more global uncertainty expected in the near term, the yields in corporate bonds are likely to face continued upward pressure.
(with inputs from Christina Titus)