Budget 2024 sparks optimism for debt funds — where should you invest now

In the wake of Budget 2024, experts are optimistic about the positive impact it could have on debt funds. Despite not explicitly delving into changes in the bond markets, Finance Minister Nirmala Sitharaman's interim budget has set forth initiatives like a thrust towards renewable energy, healthcare expansion, and support for the electric vehicle ecosystem.

Experts believe that these announcements will indirectly influence financial markets and enhance the performance of debt instruments.

Chakrivardhan Kuppala, Co-Founder and Executive Director of Prime Wealth Finserv, pointed out that the allocation of corpus for long-term financing in sunrise sectors reflects the government's commitment to support economic growth and sustainability.

"This move, combined with interest-free loans for research, may stimulate economic activities and potentially lead to an improved fiscal deficit outlook and stronger macroeconomic fundamentals," he told CNBC-TV18.com.

The impact on debt funds is particularly notable as stable or lower interest rates, resulting from the government's growth-oriented approach, are traditionally positive for the bond market.

For long-term investors in debt funds, Kuppala said this emphasis on growth and sustainable development could translate into a more stable interest rate environment.

Notably, Budget 2024 announced that India will establish ₹1 lakh crore corpus to incentivise innovation and research on sunrise domains.

The fund will have a provision of 50-year interest-free loans and will provide long-term financing and refinancing for long tenures with low or zero interest rates.

While speaking exclusively to CNBC-TV18.com, Mukesh Kochar, National Head of Wealth at AUM Capital, further highlighted a crucial aspect of the budget —lower fiscal deficit.

He explained that the lower fiscal deficit implies reduced government borrowings or supply of government securities.

With India's inclusion in the JP Morgan Bond Index from June 2024 and expectations of a significant flow till March 2025, he said a greater demand for government securities is anticipated.

"This surge in demand and lower supply is likely to result in lower yields. This will make long-term bonds attractive," he told CNBC-TV18.com.

Seconding his view, Rahul Bhutoria, Director and Founder of Valtrust, highlighted the impact of India's upcoming inclusion in a global index.  This has led to increased demand for government securities (G-secs) from index-following funds.

The positive surprise in fiscal consolidation is viewed favourably by bond investors.

Navneet Munot, MD & CEO of HDFC Asset Management, added that long-term investors are likely to view the budget positively.

However, he cautioned that the the near-term direction will depend on global cues, incoming data, and earnings trajectory.

Kochar of AUM Capital believes that debt mutual funds with medium- to long-term maturity, especially long-term gilt funds and dynamic bond funds, are expected to perform well, albeit with some short-term volatility.

Bhutoria of Valtrust believes that investing in longer-dated securities, including Indian government bonds, could be beneficial for those with a long-term perspective.

Advocating bond market investments has emerged as a critical theme for 2024, said Abhijit Roy, CEO of GoldenPi.

He added that the anticipated surge in retail interest is supported by expectations of increased capital raised through non-convertible debentures (NCDs), initial public offerings (IPOs) and private placements.

Furthermore, Roy highlighted the evolving landscape of sovereign gold bonds (SGBs), noting the increased investor interest attributed to its outstanding performance over three tranches in 2023.