Mutual Funds Blackrock DSP Bonds
Mutual Funds Blackrock DSP BondsReuters file

DSP BlackRock Investment Managers, which manages DSP BlackRock mutual funds, is lapping up long-duration bonds foreseeing a cut in interest rates by India's central bank next month. The Reserve Bank of India (RBI) is due to meet April 5 for its first 2016-17 monetary policy meeting.

"We are reallocating more money in the 10-15 year segment of the government bond yield curve which is liquid and offers potential price appreciation," said Dhawal Dalal, head of fixed income at DSP BlackRock Investment Managers, reported Bloomberg.

"There's been a marked improvement in sentiment since the budget and with global markets stabilizing, market participants expect the Reserve Bank of India to reduce the repurchase rate further," he added.

DSP BlackRock Investment Managers had assets under management valued at Rs 39,182 crore as on Dec. 31, 2015, according to its December quarter report. 

Analysts expect the RBI to cut the existing 6.75 percent repo rate by at least 25 basis points (bps) in view of easing retail inflation, which declined to a four-month low of 5.18 percent in February.

In its policy statement Feb. 2, the RBI had said, "Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth." 

The Indian government stuck to its fiscal consolidation path and projected the fiscal deficit at 3.5 percent of gross domestic product (GDP) in financial year 2016-17. This, along with retail inflation well below the bank's target of 6 percent by January this year, is being widely interpreted as trigger for the RBI to cut the repo rate.

The Indian benchmark 10-year bond yield slumped to a near five-month low Tuesday and bond prices moved up after the RBI said it will buy bonds up to $2.23 billion on Thursday in an open market operation (OMO) of government of India securities, reported Reuters.

An analyst told the agency that though bond prices are unlikely to rise further, the RBI could spring a surprise, triggering a rally.

"I don't see space for too much further momentum, though any surprise (RBI rate move) could cause a further rally," said Vijay Sharma, senior executive vice-president at primary dealer PNB Gilts. 

[1 lakh = 100,000 | 1 crore = 10 million | 100 crore = 1 billion]