Indian Bond Market: Opportunities for the Investors ……By Thakur Ajit Singh

 

Indian Bond Market: Opportunities for the Investors

                                                                                                                ……By Thakur Ajit Singh

 

A Positive Outlook for Fixed Income Investors in 2025:-

The Indian bond market presents a promising landscape in 2025, driven by easing inflation, supportive monetary policy, and rising foreign capital inflows. For investors with objectives such as income generation, capital preservation, or portfolio diversification, bonds—particularly in the secondary market—are gaining renewed relevance.

The choice between high-coupon bonds and high-yield instruments should be guided by an investor’s risk appetite, investment horizon, and return expectations. Let’s explore the key macroeconomic factors and strategic considerations shaping bond market opportunities this year.

Key Macroeconomic Drivers:-

1. Inflation at Multi-Year Lows: As of April 2025, India’s Consumer Price Index (CPI)-based inflation stood at 3.16%, down from 3.34% in March, and the lowest in six years. Importantly, this marks the third consecutive month of inflation staying below the RBI’s 4% target. Low inflation supports bond valuations, particularly for longer-tenure debt, by reinforcing expectations of lower policy rates and enhancing real returns for fixed-income investors.

2. RBI’s Accommodative Monetary Policy: The Reserve Bank of India (RBI) is expected to maintain an accommodative stance to bolster economic growth. This likely translates into:

v  Stable or lower repo rates

v  Improved system liquidity

v  Declining bond yields. 

In such a climate, bond prices rise, especially for existing higher-coupon bonds—making 2025 an opportune time to consider fixed income investments.

3. Strong Foreign Fund Inflows : India has witnessed a remarkable turnaround in foreign investor sentiment with $419 million in dedicated FII inflows in a recent six-month high; broken into $239 million directed into Fixed Income ETFs, and $180 million flowed into long-only bond funds.

This contrasts with outflows in other emerging markets, such as China, which recorded $532 million in redemptions during the same period.

4. Robust FDI Trends: Despite global uncertainties, India has been averaging over $4.5 billion in monthly FDI inflows since January 2025. Structural reforms, geopolitical stability, and investor-friendly policy initiatives by the Government of India continue to attract long-term capital, reinforcing confidence in India’s fixed income story.

Why Bond Prices Rise When Interest Rates Fall:-

A quick refresher: Bond prices and interest rates move inversely. When interest rates fall, new bonds offer lower coupon rates. Consequently, older bonds with higher coupons become more attractive, pushing their prices up. Conversely, rising rates make older bonds less appealing, lowering their prices.

Thus, in a falling interest rate environment, investing in existing bonds through the secondary market can be especially lucrative.

Primary vs. Secondary Market Bonds – What to Choose?

1. Secondary Market Bonds:

v  Advantageous in a falling rate cycle: Older bonds with higher coupons fetch premium prices.

v  Liquidity & Flexibility: Can be bought/sold before maturity.

v  Market-Driven Pricing: Subject to market sentiment and issuer creditworthiness.

2. Primary Market Bonds;

v  Lower Entry Price: Typically issued at face value.

v  Higher Risk: Especially in corporate bonds with uncertain ratings.

v  Strategic Fit: Suitable for those seeking to hold until maturity in stable rate environments.

Strategic Investment Recommendations for 2025:-

1. Lock in High Yields Now: With interest rates likely to decline, investors should consider locking in current yields before RBI rate cuts compress returns.
2. Invest in Long-Duration Government Securities: These stand to benefit the most from falling yields and provide stable, sovereign-backed returns.
3. Select High-Quality Corporate Bonds: AAA and AA+ rated corporate bonds offer attractive spreads over government securities with manageable risk.
4. Diversify via Fixed Income ETFs: Bond ETFs offer liquidity, diversification, and professional management—ideal for passive investors.
5. Explore Niche Fixed-Income Segments: Investors with a higher risk appetite can explore:-
• Corporate Credit: Loans to businesses; a key pillar for economic expansion.
• Securitized Debt: Includes Asset-Backed Securities (ABS) and Mortgage-Backed Securities (MBS) tied to cash-generating assets like auto loans and mortgages.
• Emerging Market Debt (EMD): Bonds issued by developing countries or companies therein, offering higher yields but with increased volatility.

Final Thoughts:-

The Indian bond market in 2025 offers an attractive risk-reward balance for investors seeking income stability, especially against the backdrop of falling inflation and accommodative policy. By strategically locking in yields and maintaining a diversified approach—across government, corporate, and structured debt instruments—investors can optimize returns while managing risk.

That said, due diligence is critical. Investors must prioritize credit quality, duration suitability, and market conditions when selecting bonds. GRADED FINANCIAL SERVICE can suggest and help Investors invest in Highly Rated Bonds.

Thakur Ajit Singh

Founder – Graded Financial Services, a Mall of Investment Products & Services,

Founder – Quick Turtle, Executive Search & Placement Firm

Chairman – Investor & Consumer Protection Cell, MRCC

Trainer | Management Consultant | Finance Expert.

 

Reality Scores Over Sentiments

 

     

         Reality Scores Over Sentiments

Global Scenario:

I believe 2025 will be a year of navigating turbulence rather than one of rapid GDP growth. Global economic expansion is expected to remain subdued, with the U.S. projected to grow at a modest 2.0%, the Eurozone lagging at 0.9%, and China’s growth forecast at 4.2%—well below its historical average.

Persistent inflation, fuelled by higher fiscal spending and potential tariff hikes, may limit central banks' ability to cut interest rates as they strive to balance growth and inflation control.

A few months into 2025, the sharp decline in the U.S. stock market has prompted leading Wall Street analysts to revise their bullish outlook for the S&P 500. Heightened uncertainty around President Donald Trump’s evolving tariff policies and retaliatory measures from trading partners have triggered fears of an escalating global trade war, leading to increased market volatility.

As of March 17, 2025, Wall Street’s revised year-end target for the S&P 500 is 6,667, implying a 17% advance from its current level of 5,675 (Source: MarketWatch).

The shift in Wall Street’s sentiment marks a sharp departure from late 2024, when strategists expected the market to sustain its upward trajectory following two strong years. Initially, hopes were pinned on Trump’s "pro-growth" agenda, promising tax cuts and deregulation. However, tangible policy action remains elusive, with attention largely focused on tariffs, immigration curbs, and fiscal downsizing.

Geopolitical & Policy Risks: 

The uncertainty surrounding trade policy could drive increased market volatility in 2025-26. A key trend to watch is the global shift in economic strategy—from monetary policy to fiscal policy, as governments seek new drivers of growth. With inflation still above comfort levels, central banks have limited flexibility, making fiscal measures the next battleground for economic expansion.

Indian Economy and Equity Market:

2025 has been challenging for Indian equities, marked by persistent FII selling and a steep market correction. Several factors have contributed to this downturn:

• Rupee depreciation
• High market valuations
• Earnings slowdown
• Strong dollar and rising U.S. bond yields

1)    Impact of U.S. Macros on Indian Markets : The U.S. bond yield surge is a key headwind. The 10-year U.S. Treasury yield has climbed above 4.3%, narrowing the spread between U.S. and Indian sovereign bonds to 2.24%, down from over 5% in 2022. A stronger dollar index (103 as of March 17, 2025) has led to sustained FII outflows, further pressuring the Indian market.

The big question: Why should FIIs invest in a high-valuation Indian market when U.S. bonds offer a risk-free return of 4.5%?

2)  Valuation Concerns: At Nifty 22,500, the Indian market is trading at 20x FY26 estimated earnings, well above the long-term average of 18x. Given the resilience of the U.S. economy and the relative affordability of other emerging markets, FIIs may continue to reduce exposure to Indian equities.

3)    India’s Long-Term Growth Potential: Despite near-term headwinds, India's economic trajectory remains compelling:

• IMF projects India’s GDP to grow at an average of 6.1% over the next five years, making it the world's third-largest economy by 2027 after the U.S. and China.
• The economy is expected to double from $3.5 trillion to $7 trillion by 2030.
• India’s manufacturing sector needs to transition from import substitution to export-led growth to sustain this momentum.
• However, a slower-than-expected global recovery and geopolitical disruptions could weigh on India’s export outlook. To counter this, India must harness its domestic strengths to drive sustainable growth.

4)   The Role of Capital Markets & Policy: India's capital markets play a critical role in channeling savings into investments, ensuring financial stability, and boosting investor confidence. However, while domestic institutional investors (DIIs) have cushioned the impact of FII outflows, they may not be able to fully counterbalance prolonged foreign selling.

Fiscal policy will be crucial in shaping India's economic trajectory. The government must:

• Balance fiscal discipline with growth-oriented spending
• Prioritize capital expenditure in key infrastructure projects
• Encourage state governments to efficiently utilize allocated funds

5)  India’s Near-Term Outlook:  India’s GDP is expected to grow between 6.7% and 7.3% in FY 2025-26, albeit with downside risks. Key challenges include:

• Geopolitical uncertainties impacting trade and supply chains
• Delayed global recovery affecting exports
• Inflation concerns, although expected to moderate with a strong agricultural output and proactive policy measures

Despite these risks, India's GDP gap versus pre-COVID-19 levels is closing, and the economy is gradually regaining momentum.

Investment Strategy for Indian Equity Markets:

1. I personally believe that India has bottomed out, and economic growth will accelerate over the next six months. Additionally, Donald Trump’s policies are likely to stabilize, reducing global market uncertainty.
2. Investors should consider deploying capital in tranches, strategically buying equities with every 5 % market decline to position themselves ahead of the recovery.
3. The approach should focus on bottom-up stock picking, prioritizing strong fundamentals over purely technical indicators, while also factoring in macro-economic trends.
4. In these uncertain times, smart and informed investing will be crucial. A well-researched, fundamentals-driven strategy can help investors navigate volatility and build capacity for strong returns over a one-year horizon.

Author
Thakur Ajit Singh
Founder - Quick Turtle | Graded Financial Services | AskCred
Financial Expert | Trainer | Management & Placement Consultant

Cell: 8169810833

Ways to Invest in Precious Metals: Gold & Silver

Ways to Invest in Precious Metals: Gold & Silver

In times of economic turmoil, precious metals (gold, silver) tend to retain their value or even appreciate. It is for this reason that they are so attractive as investment options as they provide a buffer to an equity-debt portfolio, as well as appreciate over time.

Unlike gold, silver has immense technical and industrial uses as it is an excellent thermal and electrical conductor. It is widely used in specialist electronics and solar panels. Its anti-bacterial properties also make it popular in the medical industry. Less than 10% of the gold mined is used for industrial purposes, but in the case of silver the number is 50%. These applications create a fundamental demand for silver, the intensity differing over various economic cycles with higher demand during boom times.

Investors can diversify by investing atleast 10% of their portfolios in low-risk assets like silver, gold, etc. This will reduce the overall risk exposure in their investment portfolio. 

GOLD

1. Physical Gold:
The price of physical gold varies by geography. It’s a traditional method of investment, but storing and insuring physical gold can be cumbersome and costly.

2. Gold ETFs (Exchange-Traded Funds):
Gold ETFs are financial instruments that hold gold bars, with each share representing a portion of that gold. These ETFs invest in gold bullion or futures, with prices that closely track the price of gold, although minor deviations due to tracking errors may occur.

• Advantages: Gold ETFs are more transparent, liquid, and closely aligned with market prices than physical gold. They can be bought and sold online and held in Demat form. One unit of a Gold ETF typically equals one gram of gold. They also have lower costs, with annual charges including brokerage and an expense ratio ranging from 0.50% to 1.00%.
• Taxation: Earnings from ETFs are taxed according to the investor's income tax slab, irrespective of the holding period.
• Liquidity: Gold ETFs are highly liquid and can be traded freely without a lock-in period, making them suitable for short, medium, or long-term investment objectives.
• Purity: 0.999 purity gold bullion is the underlying asset of gold ETFs.

3. Gold Mutual Funds:
Gold mutual funds are open-ended funds that invest directly or indirectly in gold assets. Unlike Gold ETFs, the value of one unit in a gold mutual fund doesn’t correspond to one gram of gold.

• Investment Method: You can invest in gold mutual funds through SIPs (Systematic Investment Plans) starting from as low as Rs. 500, or via a lump sum. The returns are linked to the performance of physical gold, gold ETFs, or gold-related securities.
• Types: Examples include gold mining funds and gold funds of funds (FoFs). Gold FoFs invest in units of Gold ETFs, and you don't need a Demat account to invest.
• Costs: Gold mutual funds have an annual expense ratio between 0.6% and 1.2%, which includes management fees and ETF fees. Redeeming gold mutual funds within a year may incur an exit load of 1-2%.
• Liquidity: Gold mutual funds are more liquid than Gold ETFs in India, as they can be quickly bought or sold.

 

 

 

Comparison: Gold ETF vs. Gold Mutual Fund

4. Sovereign Gold Bonds (SGBs):
SGBs are government-backed securities denominated in grams of gold. Investors pay cash for the issue price and hold the bonds for a specific period. Upon maturity, the bonds can be redeemed for cash equivalent to the prevailing gold price.

• Interest: SGBs offer a fixed interest rate of 2.50% per annum, which is tax-free if held until maturity.
• Purity: The issue of sovereign bonds is based on 24 carat gold price of 99.9% purity gold. 
• Security: SGBs are a digital asset stored in a Demat account, eliminating the risk of theft.
• Lock-In Period: SGBs have a lock-in period after which they can be redeemed. The redemption price is based on the average closing price of gold (99.9% purity) 3- days prior to the redemption date.
• Minimum Investment: The minimum investment in SGBs is one gram of gold.

Unlike physical gold, SGBs do not carry the risk of theft and are a more secure and tax-efficient way to invest in gold digitally.

Silver ETF

Investment Exposure:

A Silver ETF is an exchange traded fund, listed on the National Stock (NSE) Exchange and Bombay Stock Exchange (BSE). The ETF invests in 99.9% purity physical silver and may also participate in Exchange Traded Commodity Derivatives (ETCDs) with silver as the underlying commodity. These ETF units are held in a demat account. So, one can buy, sell or trade these units at ease during any time of the trading hours just like stocks.

Silver ETFs track the spot price of silver in the open markets. Fluctuations in the price of silver will change the NAV of these ETFs. Each unit of a silver ETF represents 1 gram of physical silver and is stored in a secure vault by the Asset Management Company. 

The fund managers must obtain auditor reports on physical verification of the silver stored in vaults at regular intervals.

 

Features of Silver ETFs

·       Purity: The underlying of silver ETFs is 0.999 purity silver bullion. 

·       Taxation: Silver is a capital asset. An individual’s investment in bullion attracts long-term capital gains tax if held for more than 36 months. In such a case, gains from silver are considered taxed at a flat rate of 20%.

However, if the investor’s holding is for less than 3 years or 36 months, profits are treated as short-term capital gains and are added to the regular income, which is taxed as per the respective tax slab.

·       Tracking Error: Tracking error is the difference between the returns of a scheme and that of an underlying benchmark. Fund houses must keep their tracking error within a range of 2%. If it exceeds 2%, the fund houses must mention tracking error percentage on their portal.

·       Expense Ratio:

SEBI has mandated that fund houses cannot charge more than 1% of the Silver ETF scheme’s assets under management as the expense ratio.

 

Gold ETF vs. Silver ETF: Where Should You Invest?

If you’re more conservative investor with a low appetite for risk, consider investing in gold ETFs due to their relatively stable nature. For more risk-aggressive investor with a high tolerance for volatility, silver ETFs is a choice.  

Author
Thakur Ajit Singh
Founder - Quick Turtle | Graded Financial Services | AskCred
Financial Expert | Trainer | Management & Placement Consultant

 

Avoiding - Mid-Life Economic Crisis for India

 

Avoiding - Mid-Life Economic Crisis for India

The term "middle-income trap" has become increasingly common among policymakers to describe middle-income economies that seem unable to transition to high-income status. This concept, discussed in the World Development Report 2024, highlights that countries often hit a "trap" at about 10% of annual U.S. GDP per person, around $8,000 today. As of 2024, India's GDP per capita is $2,731 (nominal), and its GNI per capita is $10,123 (PPP).

Understanding the Middle-Income Trap:

According to the World Bank, lower middle-income economies have a GNI per capita between $1,136 and $4,465, while upper middle-income economies fall between $4,466 and $13,845. High-income economies have a GNI per capita above $13,846. Over the past 70 years, many low-income countries have rapidly developed, lifting millions out of poverty. However, only a few have achieved high-income status, with income growth often being variable and volatile.

In recent years, policymakers in slower-growing middle-income countries have focused on the middle-income trap. While its existence is debated, the concept encourages a reassessment of strategies once traditional growth sources diminish. Middle-income countries must drive productivity, innovation, and competitiveness while strengthening economic fundamentals to foster and stabilize growth. Achieving high-income status is challenging and prone to growth slowdowns, but stagnation is not inevitable.

Origins and Evidence of the Middle-Income Trap:

The middle-income trap was first described by Indermit Gill and Homi Kharas, noting that regions like Latin America and the Middle East often experience slowdowns after rapid growth from low to middle income. This growth, driven by cheap labour and basic technology catch-up, eventually loses momentum as wages rise and the rural labour force shrinks. Without new growth sources, countries struggle to compete with low-wage or high-innovation economies.

Empirical evidence from Latin America and the Middle East supports the middle-income trap, with many economies remaining at middle-income levels for decades. Of the 101 middle-income countries in 1960, only 13 became high-income by 2008. Research shows that growth slowdowns are more likely at middle-income levels, particularly around per capita incomes of $10,000-$11,000 and $15,000-$16,000 (PPP-adjusted). Some models suggest low-productivity equilibria in middle-income countries, characterized by low shares of skilled workers.

However, other evidence questions the trap's existence. Many countries have seen steady income growth since 1960, and the transition from middle to high income does not take longer than other transitions. Historical evidence shows economies move up across income groups, with those achieving high-income status experiencing faster growth even at lower income levels.

Avoiding the Middle-Income Trap:

The World Development Report 2024 outlines strategies for developing economies to avoid the middle-income trap. Lower-middle-income countries must adopt modern technologies and business practices, while upper-middle-income countries need to push the global frontiers of technology. This requires reconfiguring economic structures to enable greater economic freedom, social mobility, and political contestability.

Today, 108 countries are classified as middle-income, housing 6 billion people. Since the 1990s, only 34 middle-income economies have attained high-income status, accounting for less than 250 million people. The median income per capita of middle-income countries has never risen above 10% of the US level. Climbing to high-income status will be harder due to high debt, aging populations, and growing protectionism.

The "3i strategy" recommended by the World Development Report 2024 includes:

1)     Investment: Low-income countries should focus on increasing investment.

2)     Infusion: Lower-middle-income countries need to adopt modern technologies and business practices.

3)     Innovation: Upper-middle-income countries must drive innovation and push technological frontiers.

 

Key Actions for Middle-Income Countries:

1)     Discipline Vested Interests: Implement competition regimes to encourage new entrants and prevent large corporations from stifling growth.

2)     Reward Merit: Accumulate and allocate talent efficiently, enhancing the use of skilled workers.

3)     Capitalize on Crises: Use crises as opportunities for tough policy reforms, focusing on energy efficiency and emissions reduction.

 

Conclusion:

For India to escape the middle-income trap and achieve high-income status, it must transition from a trading economy to a manufacturing one with a prime focus on exports. Emphasizing research, innovation, and technological development is crucial. Additionally, designing an education system that is industry-centric while preserving cultural values will support this transformation.

 

The Perfect Blend in Investing

The Perfect Blend in Investing

Dear Investors,

Direct Equity Investment is not for the investors juggling busy schedules and lacking in-depth market knowledge, navigating the investment landscape can be overwhelming.

Enter professionally managed funds like Mutual Funds (MF), Portfolio Management Services (PMS), and Alternate Investment Funds (AIF), offering a streamlined approach to diversified investing.

Challenges for Investors:

Identifying the right funds amidst the multitude of options can be daunting (there are 2500 Mutual Fund Schemes, 324 PMS schemes, 1088 schemes in AIF in India), requiring extensive research across various asset classes. Seeking guidance from experienced investment consultants like 'GRADED FINANCIAL SERVICES', whose founders come with collective experience of 60 years while operating in the space of Stock Broking, Wealth Management, Banking, Insurance, Forex and Investment Banking, can ease this burden.

1)    Mutual Fund (MF):

MFs pool resources from investors to access a range of investment opportunities, from equities to bonds and more.

Benefits include risk diversification, affordability, liquidity, low expense ratios, and tax efficiency.

The minimum amount required to invest in mutual funds is Rs. 100/- for the Lumpsum and Rs. 500/- through SIP (Systematic Investment Plan).

 

2)   Portfolio Management Services (PMS):

PMS offers tailored investment solutions for High-Net-Worth Individuals (HNIs), providing access to diverse asset classes viz. mix of stocks, fixed income, commodities, real estate, other structured products, and cash

Unlike mutual funds, PMS offers flexibility in exposure and fee structures based on performance.

The minimum amount required to invest in PMS is Rs.50 Lac.

 

3)   Alternate Investment Fund (AIF):

It is a privately pooled investment vehicle that invests in alternative asset classes such as - private equity, venture capital, SMEs, debt funds, Private Investment in Public Equity Fund (PIPE), hedge funds, real estate, commodities, and derivatives.

AIFs may offer higher returns than traditional investments due to their exposure to a broader range of assets and investment strategies. However, this higher return also comes with higher risk.

The minimum investment amount for investors is Rs. 1 crore.

(AIF) Taxation:

Tax implications vary across AIF categories, with Category I and II enjoying pass-through status (taxed at the hands of investors), while in case of Category III the income earned will be taxable in the hands of the fund.

 

Suggestions:

Personalized investment strategies based on financial goals and investment capacity, combining MFs, PMS, and AIFs for optimal diversification and risk management.

For Example: 

1) Invest less than Rs.1 Crore:  in highly rated (evaluated based on 7 – vital parameters of selection) MFs, diversified in equal amount amongst Top Rated Large, Mid, Small, Multicap, Hybrid, and Index Funds.

2) To Invest Rs. 1 Crore: Rs. 50 Lac in MFs (as explained in above point number 1) and Rs. 50 Lac in Highly rated PMS.

3) To Invest Rs. 2 Crore: Rs. 50 Lac in MFs (as explained in above point number 1), Rs. 50 Lac in highly rated PMS, and Rs. 1 Crore in hghly rated AIF.

4) To invest over Rs. 2 Crore: Follow above sequence from point 1 to 3.

Conclusion:

The Blend of MF, PMS, AIF would offer wonderful opportunities to the investors to take exposures, vide diversification across asset classes, market caps, executed under different proven strategies of investing by an experienced Fund Managers.

However, sound subject knowledge, capability to do risk assessment, and make right choices of funds /schemes by the investors would make all the difference, as the funds come with varying degree of complexities, risk and corpus requirement.

 

Committed to your financial well-being.

Warm Regards

Thakur Ajit Singh

Founder - Quick Turtle | Graded Financial Services | AskCred

Financial Expert | Trainer | Management & Placement Consultant

Cell: 8169810833