Bandhan AMC moved to an underweight duration position across multiple fixed-income portfolios as of May 2026, CIO Suyash Choudhary said in an interview with the Economic Times, citing a risk of 50–75 basis points of RBI rate hikes over the rest of the current fiscal year. The shift was implemented by cutting exposure to 14-year and 40-year government securities, the same segment the fund had overweighted just months ago. India’s 10-year government bond yield stood at 6.96% on May 8, 2026, per Trading Economics, against a repo rate of 5.25%, a 171 basis point gap that tells you the bond market is pricing something the RBI has not officially acknowledged yet.
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The RBI Problem, Stated Plainly
Choudhary’s positioning call sits in direct contrast with what the RBI said on April 8. The Monetary Policy Committee held the repo rate at 5.25% and maintained a neutral stance, and Governor Sanjay Malhotra said explicitly that rate hikes are the wrong tool for a supply-driven inflation shock. The RBI’s own FY27 CPI projection is 4.6%, inside the 2–6% tolerance band, with Q3 seen rising to 5.2%, per the RBI MPC minutes published April 2026.
Choudhary’s call is that the market should not take that 4.6% projection at face value. His framework is the impossible trinity, the three-way tension between exchange rate management, capital flows, and monetary policy. Over the past year, external account pressures have boxed in the RBI repeatedly, preventing it from sustaining the lower-for-longer rate environment that bond markets had priced in through 2024 and early 2025. The result is a widening gap between what the policy rate implies and where yields are actually trading. His read: If that gap persists, the path of least resistance is tightening, not yields coming down to meet the repo rate.
That is a contrarian call. Most market participants still expect a prolonged pause, not hikes. Choudhary is making a different bet.
How the Positioning Got Here
The trajectory of Bandhan AMC’s duration calls over the past several months is worth tracing because it shows how quickly the calculus moved.
The fund initially cut duration when bond markets were pricing in prolonged low rates, a call that proved correct. Then, as the West Asia conflict escalated sharply in late February 2026 and aggressive rate hike expectations entered the market, Bandhan tactically added duration back, preferring the 14-year and 40-year sovereign segment where curve steepness created carry. Brent crude crossed $100 per barrel following disruption to the Strait of Hormuz, per the RBI MPC statement, pushing India’s crude basket into territory that hadn’t been seen in years.
That duration addition also proved well-timed. Now Bandhan has reversed again, back to underweight, exiting the same 14- and 40-year positions it built just months earlier. Choudhary notes that recent stability in yields made the exit more orderly than it might have been. But the decision wasn’t about execution. It was about the macro shifting again.
The Key Data Points the Market Is Underpricing
| Indicator | Current Level | Source | Implication |
|---|---|---|---|
| RBI Repo Rate | 5.25% | RBI MPC, April 8, 2026 | Held for second consecutive meeting |
| India 10-Year Bond Yield | 6.96% | Trading Economics, May 8, 2026 | 171 bps above repo — market pricing risk premium |
| Repo-to-Yield Gap | 171 bps | Derived | Widest in recent cycle; signals market distrust of hold stance |
| RBI FY27 CPI Projection | 4.6% (Q3: 5.2%) | RBI MPC Minutes, April 2026 | Within band but Q3 spike flagged |
| Brent Crude | ~$114/barrel (May 5 peak) | Outlook Money, May 5, 2026 | Primary inflation transmission channel for India |
| FPI Outflows FY27 to date | $5.4 billion | Governor Malhotra, April 8, 2026 | External account pressure constraining RBI room |
| Bandhan AMC Rate Hike Call | 50–75 bps cumulative | Choudhary, Economic Times | Contrarian vs RBI’s neutral stance |
| Next MPC Meeting | June 3–5, 2026 | RBI | Key signal point for hike vs hold |
What stood out in Choudhary’s note is that he flags two specific developments he believes are not fully in bond market pricing.
First: the West Asia disruption is no longer a short-cycle shock. Attacks on Strait of Hormuz shipping routes have pushed Brent to as high as $114 per barrel as of May 5, 2026, per Outlook Money. India imports more than 85% of its crude requirements. When crude stays this elevated, the pass-through to domestic inflation is near-automatic across freight, fuel, and input costs. Choudhary’s view is that inventories are depleting and logistical bottlenecks are structural enough that energy prices could settle at a higher floor, not just spike and retreat.
Second: US economic resilience combined with AI-linked global capital allocation is actively limiting the global liquidity tailwind that would otherwise give the RBI room to ease without currency consequences. India’s rupee breached 95 per dollar amid the FPI selloff, per Trading Economics. A weaker rupee compounds imported inflation further, creating a secondary loop that tightens financial conditions even without an RBI hike.
Both factors together make the duration underweight more defensible than the headline repo rate alone suggests.
Why the RBI Cannot Simply Follow Choudhary’s Script
This is the part the original source article underplays and the audit flagged as missing context.
Governor Malhotra was explicit on April 8: supply-driven inflation warrants a different policy response than demand-driven inflation. Raising the repo rate does not reduce crude oil prices. It makes borrowing more expensive for Indian businesses and households without fixing the actual source of inflation. The RBI’s stated approach is to wait for second-round effects, rising wages and persistent core inflation, before reaching for rate hikes as a tool.
FPI outflows of $16.5 billion in FY26 and $5.4 billion in FY27 to April 6 complicate this further. A rate hike could attract capital flows back and stabilise the rupee, but at the cost of domestic growth momentum the RBI has been carefully nurturing. The MPC is balancing these pressures with a neutral stance that officially keeps both options open.
Choudhary’s bet is that the market will force the RBI’s hand before the RBI is ready to move. Whether he is right depends on where CPI prints in Q3. The RBI’s own forecast says 5.2% for that quarter.
What Could Flip This Call—With Specific Thresholds
Choudhary identifies the conditions that would make him wrong and reverse the underweight.
A geopolitical resolution in West Asia easing commodity supply is the most direct trigger. If Brent crude retreats durably below $85 per barrel, the RBI’s own baseline assumption for the current fiscal year, per Union Bank of India’s MPC minutes analysis, the imported inflation case weakens sharply. A meaningful return of FPI capital inflows that stabilises the rupee below 92 per dollar would give the RBI room to ease without currency consequences, removing the core constraint of the impossible trinity. Or a reversal in global AI investment themes cooling US growth and bringing Fed rate cut expectations back into play, though that is the least likely of the three near term.
In Choudhary’s framework, the duration of underweight reverses if CPI inflation falls durably below 5% or if crude retreats below $85 per barrel and capital flows stabilise. Neither is the base case for FY27. Which is why the position stays.
What This Means for Retail Investors in Debt Funds
There is a practical consequence buried in the positioning shift that retail investors in Bandhan AMC’s debt funds should understand directly.
An underweight duration portfolio is less sensitive to interest rate moves. If Choudhary is right and rates rise 50–75 basis points, a shorter-duration portfolio loses significantly less than a longer-duration peer fund would. Conversely, if rates fall sharply, which the RBI’s neutral stance still technically permits, these funds would underperform longer-duration strategies. The fund is making a directional bet, not playing it neutral.
At the shorter end of the corporate bond curve, Bandhan has maintained exposure. Choudhary has not flagged credit dynamics there as a concern. The duration risk is contained; the carry is manageable.
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Watch: RBI MPC meeting June 3–5, 2026, and the Q1 FY27 CPI print due July. Those two data points either validate or break Choudhary’s 50–75 bps rate hike call for the rest of the fiscal year.
FAQ
What does underweight duration mean for retail investors in Bandhan AMC debt funds?
It means the fund’s portfolios are positioned to lose less if interest rates rise. Bandhan AMC has cut 14-year and 40-year government securities, the most rate-sensitive instruments, and retained shorter-end corporate bond exposure. If Choudhary’s 50–75 bps hike call proves correct, these funds will outperform longer-duration peers. If rates fall instead, they will underperform. It is a directional call, not a defensive default.
Will the RBI actually hike rates in FY27?
The RBI has not signalled any hike. Governor Malhotra said on April 8, 2026 that rate hikes are the wrong tool for supply-driven inflation. The RBI’s own FY27 CPI projection of 4.6% sits inside the 2–6% tolerance band. However, the market is pricing hike risk if CPI moves durably above 5% — the Q3 projection is already 5.2%, per RBI MPC minutes. Choudhary’s 50–75 bps hike call is a contrarian minority view versus current consensus. The June 3–5 MPC meeting is the next clear signal point.
At what oil price or CPI level does Bandhan AMC’s rate hike call break down?
In Choudhary’s framework, the underweight duration position reverses if Brent crude retreats durably below $85 per barrel, the RBI’s own fiscal year baseline assumption, or if CPI inflation falls durably below 5% and capital flows stabilise. Crude was trading near $115 per barrel as of early May 2026, per Outlook Money. Neither reversal condition is the current base case.
This article is for informational purposes only and does not constitute investment advice.
