Pds Selling Averts Gilts Rally, Call Grooved

Government security prices increased by 10-15 paise today amid good liquidity condition. Call rates remained in the 6-6.20 per cent range throughout the day.

Government security prices went up by 30-40 paise in morning trades, but the rally was cut-off by the heavy selling of securities by primary dealers (PDs).

A dealer at a new private sector bank said: "The PDs were offloading securities devolved on them at yesterday's auction. This created the prices to fall in the second half of the day."

At yesterday's auction of Rs 4,000 crore, the 7.40 per cent 2012 paper devolved 33 per cent (Rs 1,321.70 crore) on PDs.

A dealer said that there were rumours that the Reserve Bank of India (RBI) will come out with an open market action soon to mop up the excess liquidity in the market.

The RBI received huge bid amounts -- two bids of Rs 11,200 crore -- at its one-day repo auction. The central bank accepted all the bids partially. The accepted amount was Rs 8,400 crore.

Call rates opened in the 6.15-6.25 per cent range. During the day, the rates dipped and closed in the 6-6.15 per cent range.

According to dealers, the liquidity comfort in the market did not change despite the Rs 6,000 crore auction yesterday. Moreover, the central bank also helped in keeping the market liquid by not accepting the full bid amount.

Call rates may continue in the 6-6.25 per cent band. Government security prices are likely to go down a bit during the initial hours of the day as the PDs will continue to sell their holding.

But dealers are expecting the sell-off by the PDs to be over by afternoon and prices may rally a bit.