Fixed income outlook: Why fund managers see opportunity in Indian bonds at current yields

Indian fixed-income investments are regaining investor attention as higher bond yields improve the appeal of debt after years of relative underperformance. Fund managers at the Morningstar Investment Conference 2026 said investors should look beyond headline yields and align their fixed-income exposure with the interest-rate cycle and their investment horizon.

At the session titled “Fixed Income at an Inflection Point: Navigating Global Shifts and India’s Growing Role”, Manish Banthia, CIO – Fixed Income at ICICI Prudential Asset Management Company, said he was seeing a significant global rotation from risk assets towards bonds.

“I’m seeing a big rotation globally from risk assets to bonds,” Banthia said, adding that bonds had become attractive after years of underperformance. He also said India’s inflation was largely supply-driven, while the underlying economy remained strong.
Current yields offer entry opportunity

Devang Shah, Head – Fixed Income at Axis Mutual Fund, said Indian bond markets tend to react well before rate hikes actually begin. He noted that the 10-year government bond yield had risen from 6.15% in June 2025 to around 7.18%.

Shah said investors may not see capital gains over the next six months, but current yield levels offer attractive entry points. He said investors could consider gradually adding duration once the first couple of rate hikes are in, unless the rate-hike cycle becomes very deep.

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The comments come as investors assess changing global bond-market conditions, inflation and the outlook for interest rates.
Short-duration funds preferred amid uncertainty

Sunaina Da Cunha, Co-CIO (Debt) at Aditya Birla Sun Life AMC, cautioned that there is “nothing fixed about” fixed income. She said debt returns are generally driven by three factors — RBI policy, liquidity and market technicals, including demand and supply.

With crude oil prices above $100 a barrel, Da Cunha said the rate-hiking cycle could be longer than the one or two hikes expected in August. For now, she prefers liquid, money-market and very short-duration funds.

She said investors could consider moving towards two- to three-year corporate bonds once volatility settles, noting that corporate bond spreads for maturities of up to five years appeared attractive.

Corporate balance sheets remain strong

The panel also highlighted the strength of Indian corporate balance sheets. Da Cunha said companies had used the previous cycle to raise equity, deleverage and address asset-liability mismatches, leaving corporate credit in a strong position.

However, Banthia said India's corporate bond market remains shallow. He pointed to inefficient taxation and limited retail participation as factors restricting market depth, while corporate investors continue to favour AAA-rated securities.

The panel also cautioned investors against trying to time the bond market. Shah said investors should not attempt to time markets, while Da Cunha said wealth creation comes more from having the correct asset allocation than from perfectly timing the market.

For investors, the broader message was to track RBI policy, inflation, liquidity and credit conditions while matching the duration of fixed-income investments to when the money will be needed.

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