Mumbai, April 6: Bandhan AMC has released its latest macroeconomic and fixed income outlook, highlighting a significant shift in market sentiment driven by prolonged geopolitical tensions and evolving monetary policy expectations.

Authored by Suyash Choudhary, Chief Investment Officer – Fixed Income, the update notes that the ongoing West Asia conflict, now extending beyond a month, is no longer being viewed as a short-term disruption. Instead, it is increasingly being seen as a sustained macroeconomic shock with implications for energy supplies, commodity prices, and global growth.

The report underscores that supply disruptions—particularly in energy—along with rising transportation costs, are contributing to inflationary pressures globally. At the same time, structural damage to key gas facilities may delay supply restoration, prolonging the impact.

Indian Bond Yields See Sharp Movement

In India, bond markets have begun reflecting these global developments more visibly. Initially supported by the Reserve Bank of India’s (RBI) bond purchases, government bond yields remained stable. However, as the central bank reduced its intervention and supply pressures increased, yields across segments—including government bonds, corporate bonds, and swaps—have risen sharply in recent weeks.

The report points out that RBI’s administrative measures to stabilize the rupee have also influenced market sentiment. While these actions have helped curb currency volatility, they have raised concerns about a potential shift in monetary policy, including the possibility of earlier-than-expected rate hikes to manage inflation and currency pressures.

Shift in Monetary Policy Expectations

The outlook highlights a rapid transition in market expectations—from a “lower for longer” rate environment to pricing in imminent and potentially significant rate hikes. However, Bandhan AMC notes that market yields may currently reflect some degree of overshooting, influenced by risk management behavior and heightened volatility.

Choudhary observed, “The evolving situation has led markets to reassess both inflationary risks and growth implications. While inflation remains a key concern, there is now a growing recognition of potential growth slowdown, particularly in global economies.”

Portfolio Strategy Adjustments

In response to changing market dynamics, Bandhan AMC has adjusted its portfolio strategy. The firm has unwound swap positions, which no longer offer attractive protection, and increased exposure to government bonds, particularly in the 14-year and 40-year segments.

The strategy reflects a move from an underweight duration stance to a more neutral positioning, with a preference for a “bar-belled” approach aligned with expectations of a flatter yield curve.

Balancing Inflation and Growth Risks

The report also highlights a shift in global market focus—from purely inflation concerns to a more balanced view that includes potential growth risks. This is particularly evident in developed markets like the United States, where policy-sensitive bond yields have begun to decline amid growth concerns.

For India, while the narrative around policy tightening has strengthened, Bandhan AMC believes that current market pricing may already factor in substantial rate hikes. The firm emphasizes that the current economic scenario differs from past episodes, combining both price and supply shocks.

Fiscal Discipline and External Factors

On the fiscal front, the government’s commitment to maintaining deficit targets remains intact despite pressures from subsidy increases and tax adjustments. The report notes that while external account concerns persist, the overall macroeconomic context differs significantly from past stress periods.

Outlook

Bandhan AMC concludes that while valuations in the bond market have become more attractive, the neutral rate environment may have shifted higher. Investors are advised to maintain a strong focus on risk management, adopt longer investment horizons, and remain prepared for short-term volatility.

As global uncertainties continue to evolve, the fixed income landscape is expected to remain dynamic, requiring agile strategies and disciplined portfolio management.