Mr. Amandeep Chopra
Group President & Head of Fixed Income , UTI AMC Ltd
Amandeep Chopra is the Group President and Head of Fixed Income of our Company. He holds a B.Sc degree from University of Delhi and an MBA degree from University of Delhi. He joined Erstwhile UTI on June 27, 1994 and was subsequently transferred to our Company with effect from January 15, 2003. Prior to joining erstwhile UTI, he was associated with Aaina Exports Private Limited and Stenay Limited.
Q : How do you see the impact of the Covid-19 pandemic impacting the economy and the debt markets in the coming months?
Answer : There is a high level of uncertainty in the capital markets presently with regard to the direction of the economy. While the lockdown has been lifted in most of the states, there is a fear of a second wave of pandemic. Due to the pandemic, both individuals and corporates have witnessed loss of income because of Covid-19 which may in turn result in higher slippages in loan repayments and borrowings. At this juncture, not only the economic outlook remains weak but also corporate credit cycle is under stress. The various steps taken by RBI on reducing policy rate, Rs. 50,000 crores worth of additional liquidity under TLTRO 2.0 window, active participation by banks and several measures announced by the Government as a part of stimulus brought the benchmark rates down and stabilized the debt markets. Going ahead, we expect RBI to announce reverse repo rate cuts which could be between 25 to 50 bps in the August policy. The surplus liquidity, lesser issuances in the market and expectation of reverse repo rate cut by RBI in August is likely to support yields at the shorter end of the curve in the coming months
Q : The debt funds have witnessed liquidity issues in the recent pasts. What is the situation now? Do you see the situation getting better any time soon?
Answer : The liquidity issue was temporary and an isolated instance impacting largely the lower rated issuers, funds that were focusing on market trends highlighted in the previous like UTI MF did not have any issues. The various steps taken by RBI on reducing policy rate, Rs. 50,000 crores worth of additional liquidity under TLTRO 2.0 window, active participation by banks and several measures announced by the Government as a part of stimulus brought the benchmark rates down and stabilized the debt markets. Currently, the system liquidity is around Rs. 3.8 lakh Crores, we expect system liquidity to be in surplus mode.
Q : Recently Fitch downgraded the long term Issuer Default Ratings (IDR) of many Indian banks to negative. Should we be worried about the stability of our banks given the risks of rising NPAs this year?
Answer : Fitch Ratings has revised the Outlook to Negative from Stable on the Long-Term Issuer Default Ratings (IDR) of the few India-based banks viz, EXIM Bank, State Bank of India, Canara Bank, Axis Bankk etc. while affirming their IDRs, Support Ratings (SR) and Support Rating Floors (SRF). The rating actions follow Fitch's revision of the Outlook on the 'BBB-' rating on India to Negative from Stable on 18 June 2020 due to the impact of the escalating coronavirus pandemic on India's economy.
For public sector banks strong government support is expected in the event of any distress as has been witnessed numerous times in the past. Stability of the banking sector is of prime importance to government, given the criticality of the sector to the economy. There are severe implications of any bank failure, in terms of systemic stability and investor confidence. Government will continue to provide distress support to all banks and will not allow any of them to fail. For private banks, they are well places in terms of capital to absorb any asset quality shocks.
Q : Are debt markets safe in today's market? Which category of funds would you suggest to investors to keep their capital safe with relatively decent returns?
Answer : As the economic recovery may be gradual and weak, hence it is better to focus on funds which are higher quality portfolios investing in AAA rated corporate bonds of PSUs/ PFIs and private sector companies with very strong parentage and pedigree. We have already seen close to 155 bps of rate cuts so far over the last 12 months, it appears that the rate easing cycle may be bottoming out, but RBI may announce one to two more reverse repo rate cuts which could be between 25 to 50 bps. On the shorter end of the curve, yields are well supported and the curve has become fairly steep because of large system liquidity which is chasing assets. As mentioned above, the surplus liquidity, lesser issuances in the market and expectation of reverse repo rate cut by RBI in August is likely to support yields at the shorter end of the curve. Even though the nominal yield for highly rated instruments are coming down, the current spreads still are reasonably high. Investors should look at funds which are positioned to capture yield movement in the 1 to 3 years segments and have a high quality portfolio.
Q : What is the investment strategy being followed by your flagship debt funds? How are you selecting the securities?
Answer : In the current environment, our flagship funds are predominantly investing in high quality AAA rated corporate bonds of PSUs/ PFIs and private sector companies with very strong parentage and pedigree. Also, we have reduced our NBFC and HFC exposure in our flagship funds. We have tactically managed duration in our funds to take advantage of drop in yields at opportune times.
UTI has an unparalleled 17-member debt fund management team which includes 5 fund managers, 2 debt dealers, 6 credit risk research analysts and 1 portfolio analyst to track research and evaluate macro-economic indicators, capital markets and financial sector.
UTI has a detailed internal credit risk assessment framework which has been an integral part of the investment decision-making process. As part of the Fixed Income Fund Management Team, presently we have 6 fulltime credit research analysts and 1 portfolio analyst who, carry out detailed analysis of corporate/financial entities, meet company management, and monitor the company’s performance and share Industry knowledge /credit events/news through regular interaction with Fund Managers. Analysts set an internal limit on the companies based on its credit performance and relative standing among peers.
Q : Amidst the current volatility and uncertainty surrounding debt markets, what would be your message to the investors?
Answer : In the current scenario, investor should focus on capital preservation and may need to lower their return expectations from debt funds. As the returns from the liquid funds and term deposits are quite low, investors can look at moving part of their portfolio in categories like Money Market funds, Ultra Short Term Funds, Low Duration Funds, Short Term Duration Funds and Corporate Bond Fund with high credit quality portfolios depending on their investment horizon.