The IDFC Banking Debt Fund has proposed to change its erstwhile strategy of building typically around 12 month portfolio of Bank CD at the end of financial year and run down maturity. The strategy used to work as the borrowings by banks used to peak around year end and decline as the new financial year started.
· As per current environment where banks are no more showing aggression to borrow as the credit off take is benign and liquidity is surplus due to demonetisation, the above mentioned strategy is not looking attractive.
· Banks have aggressively cut MCLR and current situation is that the bank reference rate (MCLR) and the corporate bond spreads have shrunk from over 200 basis to 60/70 basis.
· With low credit off take, easy liquidity conditions and RBI expected to keep a long pause on rates, the banking system is not in a position to raise rates.
· Given this back drop, we think that the corporate bond rates has little room to delink from MCLR and thus gives a lot of comfort for building a short term portfolio.
As a result, IDFC Banking and PSU Debt Fund* will run a dominant Banks, PSU and PFI bond book with an aim to generate a higher carry in the short term space.
* Change in name will be effective June 12, 2017
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