Gilts Seen As A Ticket To Profits

The call rates are likely to rule in a narrow groove of 10 to 10.75 per cent this week.

A few bankers are, however, credited with the view that the rates may display a soft bias, dipping to 9 per cent in the latter half of the week.

An official in one of the lending institutions said the market had discounted a cut in the cash reserve ratio (CRR) . "There is liquidity in the system as banks are not making advances to their clients.

Instead, they are parking their funds in short-term securities," he added.

Another section of the bankers feel that the Reserve Bank is likely to pare the cash reserve ratio by two percentage points that in the forthcoming credit policy.

"Indications of a two percentage point cut are palpable as the finance minister and the finance secretary have assured foreign investors that the rates will come down soon," he said.

If there is a CRR cut, bankers are of the view that the call rates will once slide to 1 per cent.

The yields on securities are also declining. "Banks want to take positions in gilts before the CRR cut and then book profits," a treasury head of a foreign bank said.

Gauging from the repo deals which were struck at 10 per cent for the next fortnight, it can be safely inferred that the call rates will rule in this range, a few private banks felt.

"The advance tax outflows have already taken place and hence, the market has already discounted them," an official with a private bank said. The easy call rates will have a direct fallout on the debt market trading. Banks already seem to shun the money market as they are opting for securities to reap profits.

"Foreign banks are busy taking positions in the debt market as they know that after the CRR cut the prices of the securities will rise.

They want to buy gilts and then dipose them once the price shoots up," a dealer said.

Admitting to this, a treasury head of a foreign bank said, "We have stopped lending to the corporate sector as we know we can invest funds in securities and make profit.

Meanwhile, bankers are of the opinion that the Rs 2,000-crore zero-coupon bond to be put on sale on October 7 is unlikely to be fully subscribed.

However, another banker, who apeared more sanguine , said just as the previous zero-coupon issue sailed through, this might make it too. The coupon on the security is 13.72 per cent.

Banks, however, are keeping away from this paper as they can get a higher yield of 14 per cent by striking deals in the secondary market.!-- #include virtual="/incs/right.asp"-->