CIO Speak: Underestimate the power of the ‘silent partner’ at your own peril

India is currently stacked for a low-interest rate environment – inflation is largely under control, the fiscal glide path is stable, and global central banks are pivoting gradually, while the temporary volatility cannot be ruled out. Hence, the case for a sharp rate hike cycle is currently very low. In the backdrop of such a scenario, fixed income has traditionally played second fiddle to equity. However, it is important to underscore that even in a low-rate environment, fixed income can play multiple roles in investor portfolios, creating resilience and engendering returns.

Highlights

• While fixed income does its core job very well, new avenues of investments are emerging that have the capabilities to generate alpha – through duration calls, credit enhancement, or structured debt or such other emerging avenues.
• The Gross Asset Value (GAV) of REITs has experienced a 3x increase (since inception) and is growing at a CAGR of ~36%. Correspondingly, cumulative distributions have exceeded INR 14,300 cr (since 2019).
• It is estimated that private credit investments reached USD 9.2 bn across 163 deals in 2024, driven by larger transactions and stronger domestic participation.
• As we go up the risk curve, investors can invest in structured products that can offer higher equity participation, for example, >150% participation in Nifty upside.
• The unique advantage of living in a multi-faceted, multi-asset world is that investors have the opportunity to push past traditional paradigms of Debt = Stability and Equity = Growth and explore more options within fixed income, which can act as a powerful engine of both stability and growth.