Gilts May See Profit-Booking

The government securities market will see profit-booking at higher levels in this week as the benchmark 11.50 per cent 2011 paper would see some resistance (selling pressure) when its yield touches 9 per cent level. Currently, the yield on this paper is at 9.12 per cent.

Market players averred that the trading sentiment in the market will be positive on expectations of cuts in the bank rate and cash reserve ratio.

A dealer with a private sector bank said, "The medium-term papers (11.40 per cent 2008 paper, 11.03 per cent 2012 paper and 11.68 per cent 2006 paper) are perceived as safe bets and should attract renewed buying interest. In the last couple of months, traders have been aggressively buying the 11.50 per cent 2011 paper, which, during this week, should attract profit-booking."

He said the prices of securities were climbing back to the pre-September 11 levels as fears of full-scale US-Afghanistan war were receding. In the aftermath of the terrorist attacks on the US, the prices fell by almost Rs 3.

Another dealer said, "Expectations of a rate cut are building up. If at all it happens, the market will see a big rally. A stable rupee, coupled with soft crude oil prices, should see a lot of buying interest in the government securities."

The Reserve Bank of India (RBI) had intervened in the market on September 18 to infuse liquidity and also to keep the prices of securities from falling drastically.

Last week, market players sought liquidity to an extent of only Rs 1,111 crore from the RBI by placing select securities on its repurchase window compared with Rs 3857 crore in the preceding week.