The “Golden Era” of capital appreciation in Indian bonds may be over—now, it’s about the yield.
Axis Mutual Fund, managing ₹1.2 trillion ($13B) in debt assets, has unveiled its 2026 playbook. Head of Fixed Income Devang Shah says the fund is shifting to a “carry-heavy” strategy, prioritizing steady interest income over price swings as the Reserve Bank of India (RBI) likely hits pause on rate cuts.
⚖️ THE “BARBELL” ALLOCATION: Shah is deploying a classic 75/25 barbell structure to balance yield and risk:
- 75% (The Core): Invested in 1-3 year Corporate Bonds. This captures higher accruals without taking on excessive duration risk.
- 25% (The Tactical): Allocated to Long-term State & Central Government Debt. This retains some exposure to duration should the curve steepen, but remains a minority slice.
📉 THE MACRO VIEW: The strategy is defensive, driven by three key signals:
- RBI Pause: No further rate cuts expected.
- Liquidity: Banking system liquidity has likely peaked.
- Budget Expectations: Shah predicts fiscal consolidation will take a backseat in the upcoming Union Budget, forecasting a fiscal deficit of 4.3%–4.4% and gross borrowing of ₹16.5–17 trillion.
💡 ANALYST TAKEAWAY: When a major fund manager says the “best phase for bonds is behind,” investors should listen. Axis is effectively signaling a transition from an “Alpha” market (trading rates) to a “Beta” market (harvesting yield). For corporate treasurers and HNWIs, this suggests that the 1-3 year corporate paper segment is the new sweet spot for risk-adjusted returns in 2026.
👇 Fixed Income Pros: With inflation bottoming out, is a 75% allocation to short-term corporates too defensive, or just prudent risk management?