The Rise of Fixed Income: Shyam Maheshwari SSG Breaks Down its Increasing Presence in Global Investment Portfolios

Introduction

In today’s ever-changing investment landscape, it is crucial to understand the role of fixed income in building a well-diversified portfolio. Shyam Maheshwari, founder and partner of SSG Capital Management, shares his perspective on the rising dominance of fixed income in the global investment portfolio. With years of experience in the industry, Maheshwari’s insights shed light on the evolving dynamics of fixed income markets and the opportunities they present for investors.

The Evolution of Fixed Income Investments

Traditionally, fixed income investments consisted of bank deposits and savings accounts, which provided a stable base for investors. However, as the financial markets evolved, mutual funds with liquid plans emerged as a more attractive option, offering better tax-adjusted returns than traditional bank deposits1. This shift in preference led to a gradual increase in the significance of fixed income in the investment portfolio.

Mr.Shyam Maheshwari-founder and partner of SSG Capital Management.

While mutual funds gained popularity, other fixed income options such as direct bonds, Non-Convertible Debentures (NCDs), and securitized products have not gained much traction. This can be attributed to a lack of investor awareness and the perceived risk associated with these alternatives1.

Fixed Income Dominance in the Global Investment Portfolio

Shyam Maheshwari SSG , assesses that fixed income dominates the global investment portfolio, with the widely discussed 60:40 (Stock: Fixed Income) portfolio being a reflection of this trend1. However, he also highlights the importance of being compensated for the risks involved, particularly in emerging markets. In such markets, investors may seek higher returns in the equity world to offset the inherent volatility and uncertainty1. This analysis emphasizes the need for a balanced approach that takes into consideration the risk-reward spectrum.

Maheshwari further elaborates on the potential risks associated with equity-heavy portfolios that are heavily embedded in real estate. During economic downturns or periods of liquidity constraints, these portfolios may face idiosyncratic risks and limited liquidity. This highlights the importance of diversifying the investment portfolio with fixed income instruments to mitigate such risks1.

The Indian Bond Market Landscape

In the Indian bond market, high-grade issues dominate, with government-linked companies and government bonds forming the majority1. Shyam Maheshwari points out that while high-quality corporates have attempted to diversify their funding by accessing the capital markets, bank financing still remains the dominant funding plan1.

Government bonds, Public Sector Undertaking (PSU) bonds, and high-grade corporates (AAA or AA rated) are primarily interest-rate products rather than credit products. Their returns are largely influenced by prevailing interest rates and the expected interest yield curve, with limited dependence on the credit quality of the borrower due to their high quality and tight credit spread1.

The Need for a Diverse Bond Market

In his detailed study of the economy, Shyam Maheshwari ssg highlights the absence of a well-developed high-yield market in India, drawing a parallel with the stock market1. He compares a stock exchange that only allows blue-chip companies to list, which would limit the range of choices available to investors and make the market less dynamic1.

Maheshwari stresses the importance of having a diverse bond market, offering a range of options from AAA to CCC rated bonds. With appropriate disclosures and regulatory actions, investors can make informed decisions based on their risk appetite and investment goals1. A diverse bond market would provide investors with a wider risk-reward spectrum and promote a more efficient allocation of capital.

Conclusion

In conclusion, Shyam Maheshwari’s insights shed light on the rising dominance of fixed income in the global investment portfolio. As investors seek stable returns and diversification, fixed income instruments have gained increasing significance. While high-grade issues dominate the Indian bond market, there is a need for a more diverse bond market that offers a range of credit ratings. By understanding the evolving dynamics of fixed income markets, investors can make informed decisions and build well-diversified portfolios that align with their investment objectives.