Mr. Avnish Jain
Canara Robeco - Head - Fixed Income
Avnish Jain is the Head of Fixed Income at Canara Robeco Asset Management Company, Robeco's joint venture in India. Avnish with over 25 years of experience across many segments of the industry is actively involved in managing the fixed income funds which include Canara Robeco Equity Hybrid Fund, Canara Robeco Conservative Hybrid Fund , Canara Robeco Income Fund, Canara Robeco Gold Exchange Traded Fund , Canara Robeco Gold Savings Fund and Canara Robeco Corporate Bond Fund.
Prior to joining Canara Robeco, Avnish was a Senior Fund Manager with ICICI Prudential AMC.
His stint also includes, Head of Fixed Income with Deutsche Asset Management, Senior Consultant - Professional Services with Misys Software Solutions, Head of Trading with Yes Bank, Senior Trader - Proprietary Trading with ICICI Bank and Senior Analyst with UTI Securities Exchange Ltd.
Avnish Jain has done his B.Tech from IIT Kharagpur and post - graduation from IIM Kolkata.
Q. What is your impact analysis on the latest Bi-monthly monetary policy meet?
Answer: The monetary policy outcome was as per expectations with the monetary policy committee (the MPC) keeping status quo on rates and holding the stance at "accommodative". While the MPC has reduced rates by 135 bps in 2019, the transmission has been muted due to various factors like the prolonged credit crisis, risk averseness of banks' due stressed asset situation as well as lower growth, despite liquidity situation being very favourable. Higher inflation in recent times also prevented the MPC to further reduce rates. To nudge banks to improve credit growth, RBI introduced long term repo operations (LTRO) facility wherein the banks can borrow from RBI, against their excess SLR holdings, for 1- and 3-year period at fixed rate i.e. repo rate of 5.15%. The amount earmarked for LTRO is Rs 1 lac crore. This is expected to reduce incremental borrowing costs for banks and improve flow of credit to the economy. This news was positive for bond markets as well, especially at the short end of the curve. Yields on 2-3-year bonds came down by 20-30 bps as market expects RBI to continue with such kind of operations towards improving financial transmission. Longer term yields also came down. However, inflation remains high, limiting rate cut actions by RBI. Hence long-term yields may not fall much. Therefore, we believe that short end of the corporate bond curve (2-5 years) is likely to be better from risk-return trade-off
Q. What is your overall impression from the Union Budget? And what is your fund house view on the budgetary estimates w.r.t. fiscal deficit targets, borrowing and disinvestment plans?
Answer: While the slippage in fiscal deficit for FY2020 was expected (3.8% vs 3.3% budgeted), there was no extra borrowings, which surprised the markets. The fiscal slippage of FY2020 is expected to be bridged by small savings. The fiscal deficit for FY2021 is budgeted at 3.5% of GDP. Both direct (Corporate tax @11.4% and Income tax @14%) and indirect tax growth rate (11.1%) are modest and seem realistic as nominal GDP growth is expected to improve to 10% from 7.5%. However, the fiscal estimates are expected to be achieved assuming large disinvestment target of Rs.2.1 lac crore and non-tax revenues (NTR) of Rs.3.85 lac crore. Within NTR, telecom revenues of Rs.1.33 lac crore are assumed. The budget also continues to depend on small savings to bridge the fiscal gap. With lower revenue expectations, expenditure is also expected to moderate, growing at 12.7% in FY2021 vis-à-vis 16.6% in FY2020. The achievement of fiscal targets will depend on execution of disinvestment plans and continued improvement in GST collections. Government has already identified LIC disinvestment and BPCL strategic sale to contribute bulk of budget disinvestment target. Execution of these 2 mandates will be critical towards achieving the fiscal targets
Q. What would be your advice to investors with short, medium- and long-term investment horizons in debt funds? Where should they invest?
Answer: We continue to favour low duration, high quality corporate funds. Inflation remains high, which poses risks for longer term duration funds while bank credit flow still remains muted, posing risk for any credit exposures. Hence investment in high quality low duration, short duration and corporate bond funds in recommended depending on investment horizon
Q: Is it worth enough to opt for div. Payout for the regular income goal? What would be your advice to the investors who have already invested in Dividend Plan of Debt Schemes for this purpose?
Answer: While the dividend was tax free in hands of investor, the fund used to pay dividend distribution tax (DDT) of ~29%. Hence, it made sense for individuals being in tax bracket of +30% to invest in dividend option, as it led to marginally lower taxes for them. With the dividend being taxed in hands of income earner, the tax paid on dividends will depend on marginal tax rate of an individual. Hence an investor can opt for dividend plan if he is looking at regular income.
For investors already in dividend plans of debt schemes, they have to do analysis of their tax slabs. If there are in the higher tax slab, they may end up paying very high taxes on their dividend income and it may be advisable to be in Growth option and take advantage of long term capital gains (with indexation) by holding on to their investment for more than 3 years. They could then use systematic withdrawal plan (SWP) for greater tax efficiency.
Q. What is your advice to investors looking for superior returns in safer avenues? Which debt funds would you suggest them to invest in with medium to long term horizons?
Answer: We believe that high-quality short-term fund and corporate bond funds are good options for medium to long term horizons. These funds generally invest in high quality papers with lower duration risk and in the current scenario of high liquidity and inflation risk, these funds are likely to deliver superior risk adjusted returns as compared to duration funds.