Inflow momentum is getting stronger in balanced funds. In April, this category saw aggregate net subscription of $1.1 billion—a historic high and the first billion-dollar-plus monthly inflow, according to a Deutsche Bank Markets Research report. Also, the composition of balanced funds in the total assets under management at 5% is at a historic high. According to the foreign broker, these inflows underscore the overwhelming trend in the financialization of Indian household savings as the Indian saver gravitates from physical to financial savings. Further, a consistent rise in subscriptions into systematic investment plans (monthly annuities) appears to be a secular trend and bodes well for the Indian equity market as equity valuations are deriving dominant support from this trend. Also, a surge in domestic mutual fund equity inflows is beginning to insulate the Indian equity market, which was so far largely determined by the velocity of foreign institutional inflows, it added.
Dawn of rate hawks in India
As the Reserve Bank of India steps up its rhetoric on inflation, trends in the money markets suggest that traders are starting to price in interest-rate hikes. Benchmark bond yields have been rising since the minutes of the central bank’s April policy turned out to be more hawkish than expected. An increase in the benchmark repurchase rate, presently at 6.25%, would be the first since January 2014. The spread between the price of one-year forward contracts—in which rates to be exchanged are agreed on 12 months in advance—and the price to swap payments immediately has surged to the highest since 2011. The 10-year bond yield rose one basis point to 6.94% in Mumbai on Tuesday. It jumped to an eight-month high of 6.99% last week. Bloomberg
