Birla Sun Life Mutual Fund bets on RBI overestimating inflation threat

One of India's largest bond investors, Birla Sun Life Mutual Fund, has stacked up holdings of longer-dated paper in a bold, contrarian bet that central bank policy makers are wrong to expect an acceleration in inflation. Valued at around 13 trillion rupee ($201.68 billion), Birla's "dynamic debt" fund now holds 40 percent of its portfolio in government bonds maturing in 2045, up from 35.9 percent in February, according to its website. The bias towards the long-end becomes even more pronounced as the second and third biggest holdings are in bonds maturing in 2044 and 2029, that account for 15 and 7 percent of its portfolio, respectively. Birla does not disclose how profitable its holdings have been. Commodity Trading Tips

Elsewhere, investors have moved the other way, selling long-term debt after the Reserve Bank of India (RBI) stunned investors in February by changing its stance to "neutral" from "accommodative" due to fears of inflation. The RBI doubled down on its stance in April, even raising fears of interest rate hikes, after it warned that inflation could accelerate due to a combination of poor monsoon rains, planned hikes in wages for government employees, and the introduction of a national goods and services tax next month. Birla believes those fears are overblown and is betting the RBI, which holds its next bi-monthly policy review on Wednesday, will eventually reverse its view as consumer price inflation has remained below a 4 percent target. Nifty Trading Tips