''High yields segment may do well due to improvement in macro-economic factors and buoyancy in equity markets,'' says Murthy Nagarajan, head fixed income at Quantum AMC.

In an interview with Varsha Inamdar of Myiris.com, Murthy Nagarajan said, ''I expect RBI to maintain status quo for the next six months and a range bound bond market in the coming six months.''

Excerpt from interview Myiris had with Murthy Nagarajan:

1. What is your take on the current debt market scenario?

There has been record FII inflows in the debt markets due to some investors shifting their sovereign debt exposure from Russia to India due to geo political tensions, Euro Zone going in a deflationary cycle, US federal reserve expected to keep its accommodative monetary policy over the next few years due to lower labour participation in the work force.

Local factors like BJP government coming with a majority in parliament, a reformist government at the Centre, which wants to cut fiscal deficit to 3 % of Gross domestic product over a three year time frame, international commodity prices are showing a downward trend and the diesel subsidy almost wiped out due to lower oil prices. These macro-economic factors are positive for local bond market. The government is also expected to implement the goods and services tax in the coming year which will increase the tax base in the coming years. The rupee has also appreciated by 8.72 % in the last one year. RBI has moped up around 50 billion USD in the last one year to prevent the currency from appreciating against the dollar due to large FII flows from debt and equity (Around 20 billion in the current financial year till august)

2. Where do you see benchmark 10 year G-Sec yield in three months?

The CPI inflation trajectory is also expected to come down due to high base effect and the lagged effects of the tight monetary policy. RBI is quite confident of achieving its CPI inflation target of 8% by January 2015 but to achieve it target of 6% inflation by January 2016 looks difficult. I expect RBI to maintain status quo for the next 6 month to 9 months, RBI focus will now shift to achieving its inflation target of 6% by January 2016.

3. With a six month horizon, which segment of the debt market do you expect to deliver better returns?

I expect RBI to maintain status quo for the next six months and a range bound bond market in the coming six months.

4. According to you, which sectors will likely to outperform or underperform in near term?

I expect the high yields segment may do well due to improvement in macro-economic factors, buoyancy in equity markets. In my view the government securities markets could underperform in the near term.

5. What is the growth that you are expecting in assets of debt funds in FY15?

The asset growth in debt funds in FY15 is expected to remain stable or to go down in financial year 15. Due to the taxation change, fixed maturity plans would not be attractive for the corporate sector to invest as debt funds after the taxation changes in the union budget do not enjoy capital gains advantage unless it is held for more than 3 years.

6. What kind of products would you advocate for people who are looking at fixed income kind of investing right now?

The long term trajectory of CPI inflation is 6%. This may led to positive real returns for investors as the ten year is now trading in the range of 8.50- 8.65% levels. Commodity prices are expected to remain stable as the Chinese economy rebalances from investment driven to consumption driven economy in the coming years.