Market and RBI in good sync in terms of inflation and rate hike: Amit Tripathi

“The fact that oil price and electricity price pass through is still somewhat incomplete and prices are volatile. So, I would at the risk of going completely wrong say that another 15 to 25 bps from here would be levels at which absolute levels as well as potential inflationary print and rate actions would be reasonably priced in by the market,” says Amit Tripathi, CIO, Nippon India Mutual Fund



Let us begin with bond yields. We have been hearing about how these are sustainable, we have been waiting for the jugalbandi between the RBI as well as North Block. Before we go any further on bond yields, we saw 352 a few days ago as well, we have seen overnight what has happened with the 10-year bond yield in the United States, the inversion twice that has happened in three days indicating what the ugly R word, recession?

Yes, I think what the markets are worried about is the fact that where central banks are today in fighting against inflation, they may end up over doing what they require to do and that would be required to fill the gap that exist, the wide gap that Neeraj was just alluding to between the current policy rates and the actual trending inflation levels and that is why the market is worried about a significant slowdown in the economy leading to this kind of inversion or possibility of inversion that we are talking about.


Give me a range and I am using 10-year paper for reference here, next three months how high do you think the 10-year paper could go, worst case scenario?
I think the good news from a market perspective is that broadly speaking the market and RBI are in good sync in terms of both inflation expectations, broadly speaking as well as rate hike expectations.

Given that kind of a sync that has happened after a gap of 12 months one would assume that we are not going to see very sharp movements in the Indian bond markets from here on. Having said that this syncing is not the only driver for bond yields near term and you can have many external factors including the fact that you were mentioning about US bond markets have been sold off so on and so forth. The fact that oil price and electricity price pass through is still somewhat incomplete and prices are volatile.

So, I would at the risk of going completely wrong say that another 15 to 25 bps from here would be levels at which absolute levels as well as potential inflationary print and rate actions would be reasonably priced in by the market. I think the issue is not about the bond pricing at this point. The issue is more about the volatility that investors can see near term. So, it is not a question of whether prices are relative to volatility over the next two to three months that one needs to guard again.