India has a credit crisis which comes with a silver lining for some of the country’s funds investing in top-rated corporate bonds. After the central bank delivered the strings of rate cuts in part to fight the crisis the return jumped. The broader credit market woes have also helped indirectly by burnishing the appeal of higher-rated debt, even as lower-rated credits have struggled.
“The rate-easing cycle is on and liquidity is expected to stay surplus,” said Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra Asset Management Co.
The average returns have jumped highest in three years on funds holding company notes rated AA and above overseen by the top 10 asset management companies. This year, Reserve Bank of India (RBI) has delivered five back to back cut rates. The gains may extend as the RBI is expected to further ease policy amid continued weakness in the economy, fund managers say. The spread between the three-year, top-rated company and sovereign debt narrowed 56 basis points this year, thanks to Asia’s most aggressive easing cycle. That compares with a widening of 29 basis points in the year-earlier period.