Debt funds gain momentum in November

Debt funds gain momentum in November

Better-than-expected gilt auctions cut-off, expectations of a decline in securities supply and surplus liquidity were the factors that boosted investor sentiments in November.

Government bond prices marginally gained during the month and helped debt funds to post positive returns. The yield on the 10-year benchmark 6.9% government bond maturing in 2019 declined to 7.26% in November, from 7.3% in October.

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However, higher inflationary pressures, particularly emanating from higher food prices, kept bond prices in check. The inflation rate of food articles in the country rose to 17.47% in the week ended 21 November, from 15.58% in the previous week. Primary articles inflation in the week ended 21 November rose to 12.53%, from 11.04% a week earlier.

The stronger-than-expected macroeconomic data also led to fears of end of a loose monetary policy. During the month, data from the Central Statistical Organisation showed industrial growth increased by 9.1% in September, compared with 6% a year ago. The market had expected the Index of Industrial Production to fall to 7%, from a 22-month high of 11% in August.

Bond prices were also hit after gross domestic product data showed the economy grew 7.9% in the July-September quarter, from 6.1% in the previous quarter. The market had expected 6.3% growth in July-September quarter.

Graphics by Ahmed Raza Khan / Mint