With experts predicting that hopes of further repo rate cuts have got postponed the Insurance companies and fund houses have begun reducing their average duration in long-term funds.
Cutting of the duration began a couple of weeks earlier. ICICI Prudential Life Insurance has cut the average duration from eight years to six. “It was a tactical call,” said Arun Srinivasan, senior vice-president of the company. Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance, said insurers were looking at shorter tenure bonds, owing to postponement of the rate cut cycle and fear of further rupee depreciation.
The Reserve Bank of India (RBI) will have its first-quarter review of monetary policy soon. Earlier, the Street was expecting it to cut the repo rate (at which RBI lends to banks) at the review. Now, however, many economists believe this is unlikely.
Fund houses are treading the same path. . “We recently reduced our average duration in long-term funds from 5.5 years to four,” said a fund manager.
In this calendar year so far, RBI has cut the repo rate by 75 basis points; it is currently 7.25 per cent.
Since the start of this financial year (April 1), the rupee has weakened against the dollar by 10 per cent. Many expect it to slide more, on concerns that the US Federal Reserve might soon begin pulling back its quantitative easing programme.
