Meanwhile, headline inflation edged up slightly to 2.1% in August, though food prices continued to moderate, keeping core inflation steady at 4.1%.
The Fed’s rate cut has provided a supportive backdrop for Indian bonds, leading to a flatter yield curve. The government’s revised borrowing calendar—reducing long-term bond supply and increasing issuance in the 3–10-year segment—has also helped stabilise yields.
Shah expects the RBI to deliver one more 25 bps rate cut in December, with a possibility of another in early 2026 if trade-related headwinds persist.
“Most of the RBI’s rate easing is likely behind us. With inflation well within target, the outlook points to a ‘lower for longer’ interest rate environment,” Shah noted.He added that while duration plays have run their course, accrual strategies now offer better risk-reward opportunities, particularly in short-term (2–5 year) corporate bonds.
Shah expects the 10-year G-Sec to trade between 6.30% and 6.65% for the rest of FY26. From an investor standpoint, Axis Mutual Fund continues to recommend short- to medium-term debt funds, complemented by tactical gilt allocations, to capture carry opportunities in a stable-rate regime.
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