The global equity, commodity market markets witnessed the a very steep fall followed by bank failures which resulted in global credit and liquidity crises which led the risk of recession to global economies and therefore forced the major central banks across the globe to ease rates and infuse cheap liquidity in an unprecedented manner. The global phenomena casted a shadow on Indian financial markets leading to a liquidity and credit crunch.  As the inflation started falling and there was threat of a massive slowdown to the Indian economy the Indian central bank also decided to cut rates and CRR to infuse cheap liquidity in an unprecedented fashion. There has been a sharp decline in 10 yr g sec on back of SLR demand and flight to safety 10yr G sec has come down to 5.50% from a high of 9.50% and is expected to trade in the band of 5.5% on the upside and 4.75% on the low side a breach of level on either side will be very significant. With liquidity remaining easy and the RBI was on a rate-cutting mode, the 10-year AAA credit spreads have narrowed to around 300 Bps from 450 Bps.  We expect the credit spread to narrow down on the AAA credit curve over 6 months time as the RBI has changed the stance and we expect a sharp decline in WPI on the back of falling commodity and crude oil prices.

We believe that those investors, who wants to have upside of equity but would not want to take risk of investing in an equity scheme, may choose to invest in income scheme, which would generate returns in equities but at the same time will have a lower volatility than a normal equity scheme as the exposure to equity is restricted to a maximum of only 20%. In volatile times the same can be reduced substantially. The debt portion of the fund (80% to 100%) can provide the steady returns. The debt portion while providing income yield also offers potential capital appreciation with a falling interest rates scenario. SIP/STP is the preferred way of investing although at current levels an investor can invest in lumpsum with a horizon of 18-24 months.