Indian fixed-income investments are drawing significant attention from investors, particularly as higher bond yields enhance the attractiveness of debt instruments following a period of underperformance. At the Morningstar Investment Conference 2026, leading fund managers emphasized the need for investors to look beyond headline yields and align their fixed-income exposure with the prevailing interest-rate cycle and their personal investment horizons.
Global Shift Towards Fixed Income
Manish Banthia, CIO – Fixed Income at ICICI Prudential Asset Management Company, highlighted a substantial global rotation away from risk assets and into bonds. He noted that bonds have become compelling after years of relative underperformance. Banthia also commented that India's inflation largely stems from supply-side factors, while the nation's underlying economy remains robust.
Current Yields Offer Entry Opportunities
Devang Shah, Head – Fixed Income at Axis Mutual Fund, pointed out that Indian bond markets often anticipate rate hikes. He cited the 10-year government bond yield's rise from 6.15% in June 2025 to approximately 7.18%. While immediate capital gains might be limited over the next six months, Shah believes current yield levels present attractive entry points. He suggested that investors could gradually increase duration after the initial couple of rate hikes, provided the tightening cycle doesn't become exceptionally deep.
Navigating Uncertainty with Short-Duration Funds
Sunaina Da Cunha, Co-CIO (Debt) at Aditya Birla Sun Life AMC, cautioned that fixed income isn't without its variables. She explained that debt returns are typically influenced by three core factors: Reserve Bank of India (RBI) policy, market liquidity, and technical aspects like supply and demand. With crude oil prices exceeding $100 a barrel, Da Cunha anticipates a potentially longer rate-hiking cycle than initially projected in August. For the immediate future, she prefers liquid, money-market, and very short-duration funds. She suggested that once market volatility subsides, investors might consider shifting towards two- to three-year corporate bonds, noting the attractive spreads for maturities up to five years.
Strong Corporate Balance Sheets, Shallow Market
The panel also acknowledged the robust state of Indian corporate balance sheets. Da Cunha observed that companies utilized previous economic cycles to raise equity, deleverage, and address asset-liability mismatches, leaving corporate credit in a strong position. However, Banthia highlighted the shallow nature of India's corporate bond market, attributing this to inefficient taxation and limited retail participation. Corporate investors, he added, continue to show a strong preference for AAA-rated securities.
Ultimately, fund managers advised against attempting to time the bond market. Both Shah and Da Cunha stressed that wealth creation is more effectively achieved through correct asset allocation rather than perfect market timing. Investors should consistently monitor RBI policy, inflation trends, liquidity conditions, and credit health, ensuring their fixed-income investments align with their specific financial needs and investment horizons.