Indian Government Bond Yields Projected to Remain Range-Bound Between 6.6% and 6.9%, Says Motilal Oswal Report

Indian government bond yields are projected to remain range-bound between 6.6 per cent and 6.9 per cent, which is expected to limit near-term trading opportunities according to a research report by Motilal Oswal Private Wealth.

The report highlights that the Reserve Bank of India recently maintained the status quo in its latest Monetary Policy Committee meeting. The central bank held the benchmark repo rate unchanged at 5.25 per cent while keeping a neutral stance.

Alongside this pause, the central bank upgraded its gross domestic product growth forecast for the fiscal year 2026-27 to 6.7 per cent. It also marginally trimmed its consumer price index inflation projection by 10 basis points to 5.0 per cent.

Ashish Shanker, Managing Director and Chief Executive Officer at Motilal Oswal Private Wealth, stated in the report that the softer inflation outlook supports a pause through CY2026, while global risks leave room for a 25 basis point hike in early CY2027.

The 10-year G-Sec yield has softened to approximately 6.75 to 6.80 per cent, returning near pre-US-Iran war levels. The report noted that the 10-year benchmark yield has eased from earlier peaks to hover around 6.77 per cent.

However, global monetary policy divergence led by potential rate increases by the US Federal Reserve and tightening measures from the Bank of Japan continues to keep policymakers vigilant against currency depreciation and capital outflows. Consequently, the firm continues to prefer accrual-oriented strategies across the credit spectrum and income-generating assets like InvITs as core fixed-income allocations.

This approach is supplemented by liquid alternatives such as Hybrid SIFs, Arbitrage Funds, and Conservative Equity Savings Funds. According to the report, accrual exposure should constitute 55 to 60 per cent of fixed-income allocations, directed towards performing credit, private credit strategies, high-yield non-convertible debentures, and infrastructure investment trusts.

Turning to equities, the report maintained a neutral view on the broader asset class alongside an overweight stance on mid and small caps, citing resilient domestic demand and earnings visibility. Around 78 per cent of MSCI India revenues originate domestically, insulating the broader market from global technology-driven volatility.

Additionally, the report maintained a neutral allocation to precious metals, keeping a clear preference for gold over silver. Gold gained 0.9 per cent in July to close at USD 4,042 per ounce and climbed to around USD 4,400 per ounce in early August, supported by 289 tonnes of net central bank purchases in the second quarter and safe-haven demand amid ongoing geopolitical tensions.

"As business leaders and investors navigate the current macroeconomic environment, the stabilization of bond yields between 6.6 per cent and 6.9 per cent offers clear visibility for financial planning. With the Reserve Bank of India holding the repo rate steady and domestic demand remaining resilient, capital allocation strategies must focus on accrual-oriented instruments and stable income-generating assets. Companies and investors should carefully balance liquidity and fixed-income exposure while managing potential risks stemming from global monetary policy shifts." — Dr. Shishir Gupta, Founder & CEO, StartupLanes