The central bank cuts rates by 50 basis points. Mark to market a Rs 8 crore portfolio that is 40% long bonds of duration 7, 50% equity and 10% cash. What changes, and what do you tell the client?

The bond sleeve gains about Rs 11.4 lakh, 3.58%, and that is the only part you can size. Cash will earn about Rs 0.4 lakh less over a year. Equity's reaction is a range, say -2% to +4%, or -Rs 8 to +Rs 16 lakh, because a cut can signal cheaper money or a weaker economy. Tell him the bond gain is partly next year's income paid early, and nothing in his plan needs to change.

Separate the mechanical from the uncertain before saying any number. A falling fuel price tells you exactly what your next tank costs; it does not tell you whether airline shares will rise. A bond's price response to a yield change is arithmetic, set by duration; equity's response to a rate cut is a judgement about what the cut means. So size the bonds precisely, show the cash effect, and give equity as a range you label as an illustration.

Modified duration of 7 means about 7% of price change for each point of yield. A 0.5 point fall gives about +3.5%, and convexity of 60 adds about 0.075%, so the sleeve rises about 3.58%: Rs 11.44 lakh on Rs 3.2 crore. That gain is real today, marked to market, whether or not a single bond is sold. The cash sleeve works the other way: as its deposits and liquid fund holdings roll over at yields 0.5 point lower, it earns about Rs 0.4 lakh less over the next year.

Because the same cut can be read two ways. Cheaper money raises the value of future profits and lowers companies' borrowing costs, which helps shares. But a cut larger than expected can also signal that the central bank sees a weaker economy ahead, which hurts profits. Which reading the market takes is not knowable from the cut alone, so the honest answer is a range with the reasoning, not a point estimate. The -2% to +4% here is an illustration of that uncertainty, not a forecast.

Three things, in this order. First, the number: the bonds are up about Rs 11 lakh today, and the rest depends on how equity reads the cut. Second, what the gain means: a bond gain from falling yields is largely future income brought forward; after the move, the sleeve yields about 0.5 point less, roughly Rs 1.7 lakh a year of lower income from here. Third, what to do: nothing, unless the cut changes his needs. His bond sleeve exists to steady the portfolio, and it just did its job; chasing more duration after the cut would be buying what has already moved.

Say the limits. Duration assumes all yields move together; if long yields fall less than the policy rate, the bond gain is smaller. And the cash sleeve's lower income arrives gradually, as instruments mature.