Manish Banthia, the chief investment officer of fixed-income at ICICI Prudential Asset Management Co., which manages approximately $115 billion in assets, is strategically focusing on Indian debt securities with maturities of up to two years or less. This approach is rooted in the expectation of a sharp acceleration in India's economic growth. Banthia believes that the recent economic slowdown was merely a "mid-cycle correction" and that the central bank's supportive policies have successfully paved the way for a return to the country's long-term growth trajectory.

Banthia's investment strategy diverges from that of many of his peers, who maintain a bullish outlook on longer-duration debt, anticipating a more gradual economic recovery. He suggests that this difference in opinion implies a heightened risk of a sudden increase in yields at the three-year and longer maturity points as the economy gains momentum.

The preference for shorter-dated paper, which is already a favored strategy in India's debt market, has been further reinforced by the Reserve Bank of India's (RBI) recent policy decisions. Last Friday, the central bank surprised the market with a larger-than-expected rate cut and additional liquidity injections. However, the RBI also unexpectedly shifted its stance to neutral, cautioning that it has "very limited space" left for further easing.

Adding to the complexities of the market, Indian bonds experienced a sell-off on Wednesday due to concerns that the central bank might soon begin to withdraw excess liquidity. This excess liquidity had previously caused the overnight rate to fall 20 basis points below the policy rate.

Despite these concerns, Banthia anticipates that a central bank policy reversal is still some time away, estimating a timeframe of six months to a year. He does not expect the RBI to take immediate action to align the overnight rate with the policy rate within the next three months.

Banthia believes that the RBI has already implemented certain policy measures and will now allow them to take effect. He suggests that if the economic recovery progresses as anticipated, the central bank may reassess the liquidity situation in the next calendar year.