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Indian government bond yields are projected to remain range-bound between 6.6 per cent and 6.9 per cent, limiting near-term trading opportunities, according to a research report by Motilal Oswal Private Wealth.
The report noted that earlier, the Reserve Bank of India maintained the status quo in its latest Monetary Policy Committee meeting, holding the benchmark repo rate unchanged at 5.25 per cent with a neutral stance. Alongside the pause, the central bank upgraded its gross domestic product growth forecast for the fiscal year 2026-27 to 6.7 per cent while marginally trimming its consumer price index inflation projection by 10 basis points to 5.0 per cent. "The softer inflation outlook supports a pause through CY2026, while global risks leave room for a 25 bps hike in early CY2027," Ashish Shanker, Managing Director and Chief Executive Officer at Motilal Oswal Private Wealth, stated in the report. "The 10-year G-Sec yield has softened to ~6.75-6.80%, near pre US-Iran war levels. We expect yields to remain range-bound at 6.6-6.9%, limiting near-term trading opportunities," Shanker added. The report highlighted that the 10-year benchmark yield has eased from earlier peaks to hover around 6.77 per cent, returning to levels observed prior to the US-Iran conflict. However, global monetary policy divergence led by potential rate increases by the US Federal Reserve and tightening measures from the Bank of Japan continues to keep policymakers vigilant against currency depreciation and capital outflows. "We therefore continue to prefer accrual-oriented strategies across the credit spectrum and income-generating assets like InvITs as the core fixed-income allocation," Shanker noted. "This is supplemented by liquid alternatives such as Hybrid SIFs, Arbitrage Funds and Conservative Equity Savings Funds," he said. According to the report, accrual exposure should constitute 55 to 60 per cent of fixed-income allocations, directed towards performing credit, private credit strategies, high-yield non-convertible debentures, and infrastructure investment trusts. Turning to equities, the report maintained a neutral view on the broader asset class alongside an overweight stance on mid and small caps, citing resilient domestic demand and earnings visibility. Around 78 per cent of MSCI India revenues originate domestically, insulating the broader market from global technology-driven volatility. The report also maintained a neutral allocation to precious metals, maintaining a clear preference for gold over silver. Gold gained 0.9 per cent in July to close at USD 4,042 per ounce and climbed to around USD 4,400 per ounce in early August, supported by 289 tonnes of net central bank purchases in the second quarter and safe-haven demand amid ongoing geopolitical tensions. (ANI)
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