Primary CP issues take a back seat

Primary issuances in the commercial paper (CP) market were absent as mutual funds preferred to remain on the sidelines due to the uncertainty regarding rates, dealers said.

Rates also fell 50 basis points after the Reserve Bank of India (RBI) on Saturday lopped 100 basis points off its reverse repo and repo rates to 5 per cent and 6.5 per cent respectively.

“Mutual funds are receiving inflows from banks, but are refraining from investing and are preferring to hold on to cash,” said a dealer at a private mutual fund.

Corporate advance tax payments on December 15 have made mutual funds wary about investing as they expect redemptions from banks and companies.

Banks were offering certificates of deposit (CDs), but there were no buyers in the market On Monday, dealers said.

Banks are also not keen on issuing papers as they expect rates to fall further in the coming weeks.

“Mutual funds are not seen investing in papers for a week or so until redemption pressure eases,” said a dealer at a mutual fund.

Non-convertible debentures (NCDs) with put/call option were also not dealt in the market On Monday, dealers said.

Three-month CPs were quoted at 12-13 per cent, unchanged from Friday, while three-month CDs were at 7.50-7.75 per cent versus 8.10-8.30 per cent.

Secondary market
Volumes were subdued in the secondary market too as most mutual funds were seen investing in secondary corporate bonds, dealers said.

“Mutual funds and banks were selling papers in the secondary market to book profits,” said a dealer at an insurance company.

CDs maturing in December were dealt at 6-6.10 per cent compared with 6.50-6.60 per cent on Friday.

CDs maturing in March were dealt at 7.40-7.60 per cent compared with 7.75-8 per cent.

Vijaya Bank’s March maturity CDs were dealt at 7.41 per cent On Monday.