Debt Fund Managers Shift Focus to Select Portfolio Management Ahead of RBI Monetary Policy Decision

Debt Fund Managers Adjust Duration Bets Ahead of MPC Meet Outcome

Debt fund managers are shifting their stance on duration bets ahead of this week's Monetary Policy Committee (MPC) meet outcome, with some beginning to add maturity exposure after a prolonged period of defensive positioning. Industry data shows debt fund managers broadly reduced interest-rate risk between October 2025 and April 2026, with modified duration declining across 13 of 15 debt fund categories.

Positioning Shifts After Months of Duration Cuts

The data reveals that modified duration across debt fund categories fell from about 3.28 years to 2.89 years, while average maturity profiles also declined across most categories. However, the positioning is now beginning to evolve as fund managers reassess their strategies in light of recent market developments.

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Kotak Mahindra Asset Management Maintains Moderate-Duration Stance

According to Deepak Agrawal, Head of Fixed Income at Kotak Mahindra Asset Management, the company is maintaining a moderate-duration stance due to the fact that rate hikes are already reflected in the curve. Agrawal noted that markets have already priced in roughly 50-75 basis points of tightening, with segments of the two- to three-year curve discounting even more.

Axis Mutual Fund Becomes Less Defensive

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Axis Mutual Fund is also becoming less defensive after favoring shorter-duration strategies for the past six months. Devang Shah, Head of Fixed Income at Axis Mutual Fund, advises investors to begin shifting a portion of their portfolios into longer-duration funds. Shah noted that swap markets are already pricing in 50-75 basis points of rate hikes, while some segments of the curve imply close to 100 basis points of tightening.

Mirae Asset Investment Managers Sees Opportunities

Mirae Asset Investment Managers' Basant Bafna said the recent selloff has created opportunities rather than reasons for further defensive positioning. Bafna noted that the company has not shortened duration and has instead been increasing duration across its funds.

Edelweiss Mutual Fund Remains Cautious

Not all fund managers are convinced that extending duration is the obvious trade. Dhawal Dalal, CIO-Fixed Income at Edelweiss Mutual Fund, noted that there is no consensus with regard to the trajectory of bond yields. Dalal argued that policymakers should pay attention to signals emerging from financial markets and external-sector indicators, rather than just focusing on current inflation and growth readings.

Higher Inflation Forecasts and FX Measures in Focus

Fund managers are eyeing the RBI's response to rising crude oil prices, inflation risks, and pressures on the external sector. Most fund managers expect the central bank to raise its FY27 inflation forecast toward the 5% mark as policymakers factor in higher fuel prices and weather-related risks. Growth projections, currently around 6.9%, could be lowered by 20-30 basis points.