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One of India’s top fund managers is turning bullish on higher-yielding rupee corporate bonds based on the view that the nation’s recovery will outpace the consensus estimate of economists.

Maneesh Dangi, who oversees $25 billion of debt assets at Aditya Birla Sun Life AMC Ltd., expects India’s economy to expand by 13% in the fiscal year starting April, compared with a median forecast of 9% by economists surveyed by Bloomberg. Dangi bases his outlook in part on optimism about the jobless rate falling after lockdowns were eased as well as policy steps helping minimize insolvencies.

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Aditya Birla Sun Life Corporate Bond Fund is the third-best performer among India’s mutual funds focused on the company note category in the past year with an 11.4% return on its regular investment plan, according to data from the Association of Mutual Funds in India.

“We will start dialing up AA risk," said Dangi, 44, referring to corporate bonds with credit ratings in the AA category. “Quality AA rated papers where yields have not compressed to pre-Covid levels are offering attractive returns."

That approach must contend with numerous risks. While the government has said economic indicators suggest a broad-based recovery ahead, it forecasts the worst contraction since 1952 for the current fiscal year. Recent Covid-19 resurgence in countries that, like India, had success after strict earlier lockdowns is also a reminder of how unpredictable the crisis can be. And the nation is still home to one of the world’s largest outbreaks globally.

Dangi said the “biggest risk" to his strategy would be any premature withdrawal of support measures to counter the pandemic, and he stressed that officials face a delicate task in communicating with debt markets.

Last week brought a stark warning on that account. Yield premiums on rupee corporate bonds jumped after falling to record lows in 2020, following an announcement by the central bank that it would drain cash from the market in an effort to normalize liquidity operations.

Dangi had been reducing holdings of all but the safest corporate bonds in recent years until of late. He had done so because of a credit crisis triggered by the failure of a large shadow bank in 2018 that stung local markets even before the pandemic.

Now, though, he is keen on buying debt from firms that are likely to get upgraded to AA in the near future. He has also shortlisted a few non-AAA rated borrowers from sectors including commodities, chemicals and automobile components, which could benefit from any sharp economic recovery.

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