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FSM Debt Outlook for July 2011 July 11, 2011
Outlook on the debt market for July 2011
Author : iFAST Research Team


 FSM Debt Outlook for July 2011

The 10 year benchmark yields were on a downward trend for the greater part of the month, barring for the spike up during the middle of the month, which coincided with the RBI’s mid quarter monetary policy review. The 10 year benchmark rates were at 8.41% on 31 May 2011 and fell to the month’s low at 8.21% on 20 June 2011 before ending the month at 8.33%.

The RBI in its mid quarter policy meet increased the repo rate by 25 basis point from 7.25% to 7.50%. Since, the reverse repo rate is linked to the repo rate, the reverse repo rate has also been increased by 25 basis points from 6.25% to 6.50%. With the inflation for the month of May above 9%, the RBI will increase the repo rate again on 26 July 2011. The fuel price hike announced in June will fuel inflation to still higher levels. However, the RBI expects the inflation to rise before moderating in H2 of 2011-12.

The liquidity in the system continues to be in deficit mode.

 

 

In this scenario, we advise:

  • Investors with a time horizon anywhere from 3 months to 24 months can lock-in their money in FMPs (available with varying maturities) at the prevailing high rates

  • Investors with idle cash in the savings account should look at Ultra-Short Term Funds. The Recommended Funds in this category include DWS Ultra Short Term Fund and Birla Sun-life Ultra short term Fund.The investment horizon that we suggest for such instruments are 1 months -3 months.

  • Investors with a time horizon between 6 - 12 months should consider Short-Term Funds. The Recommended Funds in this category include Reliance Short Term Fund and Templeton India Short Term Fund


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