According to Bajaj Finserv AMC, the past year has been a reminder that markets rarely follow a straight-line narrative.
“At the start of last year, the story felt simple—rate cuts would bring yields down. But reality turned out to be far more layered,” said Siddharth Chaudhary, Head – Fixed Income, Bajaj Finserv Asset Management Limited. “Across G10 economies, central banks cut rates aggressively, yet long-term yields barely moved. In the US, 10-year yields actually went up even as the Fed cut rates. That’s because fundamentals—growth expectations, inflation outlook, and bond supply and demand—don’t disappear with policy tweaks.”
India, he said, has seen a similar playbook unfold. “Despite the RBI’s liquidity injections
through OMOs, even as recently as December, long-end yields have moved higher. Higher bond supply and global spillovers continue to dominate. Liquidity helps, but only at the margins.”
Chaudhary also addressed the sharp moves in the rupee, which is nearing the 92 mark.
“The INR depreciation rattled markets, even though the domestic backdrop looked almost textbook—strong growth and soft inflation. The trigger was external: US tariffs, geopolitical jitters, and persistent FPI outflows,” he said, adding that while the current account deficit looks comfortable as a share of GDP, “in absolute terms, it’s still a big number.”
Looking ahead, he expects stability rather than dramatic moves. “The rupee’s outlook is
constructive, but don’t expect fireworks. If US tariffs situation is resolved, the year could end stronger. However, a hawkish Fed—and consequent strengthening of the dollar—remains the biggest risk.”
On rates and strategy, Chaudhary struck a cautious note. “The monetary policy committee (MPC) meeting in December 2025 delivered the expected 25bps rate cut, given the downward inflation forecast.
For the upcoming MPC meeting in February, the RBI does not seem averse towards rate
cuts. However, with CPI projected at around 4% in the first half of FY27, further easing
maybe harder to justify.”
He added that heavy bond supply could open up opportunities. “With high state development loan issuance keeping spreads wide in Q4, this could actually offer favourable entry points as we move into FY27, and the Budget narrative starts to take centre stage.”