Gilts Slide On War Concerns, Call Follow

Government security prices dipped by 50-60 paise today on reports in the international media that a war is imminent between India and Pakistan in the near future.

Call rates remained low on the back of ample liquidity in the market. Gilt prices opened slightly lower, but started going down sharply after the first hour of trading. The trading volume in the market was low as a major section of the commercial banks stayed in the sidelines.

A primary dealer said: "There was no problem with the liquidity condition. However, the sentiment was down because of a war fear."

A section of the dealers said that gilt prices have moved up quite a bit in the last couple of days and there was a bit of correction to that as well. Another dealer with a foreign bank also mentioned that the upcoming advance tax outflows which will create slight shortage of liquidity was also a matter of concern.

Call rates opened in the 6-6.20 per cent range and stayed there throughout the day. The treasury head at a private sector bank said the liquidity with private and foreign banks improved as they offloaded a part of their government securities.

At the one-day repo auction, the Reserve Bank of India received a single bid of Rs 11,000 crore. The central bank received the bid partially and mop up Rs 5,500 crore.

Government security prices are likely to remain stable, but with a downward bias. Dealers said that the trading volume will remain low on the back of war tensions. However, a declaration from India that it will not attack Pakistan first may improve the market sentiment and can cause the prices to rally.

However, most of the action will be concentrated at the longer end of the market. Call rates, however, are likely to remain soft and rule in the 6-6.25 per cent band.