FUNDVIEW-Aditya Birla Sun Life AMC loads up on long-maturity India bonds on rate-cut, index inclusion bets

By Khushi Malhotra

MUMBAI, Jan 22 (Reuters) - Aditya Birla Sun Life Mutual Fund is lapping up 10-year and 14-year Indian government securities, on the view that the central bank will deliver one more policy rate cut and that India's bonds will eventually be added to another bond index, an ?executive at the asset manager said on Wednesday.

With 100 basis points of cuts already delivered this fiscal year, ?which runs from April to March, debate has intensified over how much further the ?Reserve Bank of India's rate-cut cycle can extend.

While a section ?of the market ?argues that policy space for reducing rates is narrowing, Kaustubh Gupta, chief investment officer for fixed income at Aditya ?Birla Sun Life AMC, expects the RBI to ?deliver one more cut before shifting focus toward transmission of its rate moves.

"With rate-cut transmission underway, it makes sense to stay in ?liquid (long-dated) bonds," Gupta said, adding that once clarity ?emerges on ?Bloomberg Global Aggregate Index inclusion, the market is likely to begin positioning for it.

The fund house manages 2.14 trillion rupees ($23.37 billion)in debt assets.

Last week, Bloomberg ?Index Services deferred including India in its Global Aggregate Bond Index, saying that there are some operational considerations to be evaluated, and it would provide an update by mid-2026.

Indian bond yields have risen in recent weeks despite record RBI bond purchases via open market operations, reflecting unfavourable demand-supply dynamics for debt, exacerbated by news of the ?deferral ?of index inclusion.

That backdrop has opened up opportunities for investors willing to look beyond near-term pressures.

Gupta is ramping up buying 10-year and 14-year ?papers, which have yields hovering at 6.65% and 7.10% respectively

"The cure to the demand-supply mismatch is modulation of duration supply as it has gone up substantially," Gupta said, adding that more liquidity infusion through open market operations will help bring yields down.

Gupta expects an additional 1 trillion rupees of OMOs by March and a further 4 trillion rupees in fiscal 2027, assuming ?a neutral balance of payments. He added the scale could be bigger if India's balance of payments turns negative.

The RBI has bought bonds worth 5.4 trillion rupees through OMOs and secondary market purchases this financial ?year so far.

($1 = 91.5810 Indian rupees) (Reporting by Khushi Malhotra; Editing by Ronojoy Mazumdar)