Market took DeMo positively; rising dollar dampened sentiment

The Finance Ministry today said demonetisation of Rs 500/1,000 notes last year was viewed "positively" by the market though the bullish sentiment was restrained due to strengthening of US dollar.
"The government's decision on November 8, 2016 to demonetise high denomination value notes was viewed positively by the market as deposits were expected to surge in banks and led to bullish market sentiment, particularly for short-end bonds," said the quarterly debt management report.
The bullish market sentiment was, however, "restrained to a certain extent" with US 10 year treasury yield rising to 2.15 per cent level and led to dollar strengthening -- adversely affecting the market, said the report for October-December quarter.

The mid-November of lower October inflation figures - both WPI and CPI - further supported the market with yields making fresh 7-1/2 year lows.
However, the market was restrained to a certain extent on hardening of US treasury yields on likely expectations of adoption of stimulative economic policies by US President Donald Trump.
The rupee continued to trade with volatility during November and breached all-time low levels, however, ample system liquidity ensured position building across securities in the bond market, it said.

The rupee slumped in the third week of November 2016 as USD continued to create pressure on the domestic currency. The domestic currency hit an all-time intra-day low of Rs 68.86 per USD on November 24, 2016, on concerns of demonetisation and also about a possible US Fed Reserve rate hike in the near term.

Intermittently, the rupee gained on few occasions to touch a quarter high of Rs 66.43 per USD on November 9, 2016, ahead of US presidential election result and on others occasions due to positive CPI and IIP data.
The report further said the deficit in liquidity was at an average of Rs 3,065 crore in October but turned into a surplus in November (average Rs 5.19 lakh crore) post the demonetisation decision and increasing further in December 2016 (average Rs 7.04 lakh crore).
The report further said India's public debt increased to Rs 61.76 lakh crore at end-December, up 2.4 per cent over the previous quarter, the government said today.

The debt (excluding liabilities under the Public Account) was Rs 60.33 crore at end-September 2016.
"This represented a quarter-on-quarter (QoQ) increase of 2.4 per cent (provisional) in Q3 FY17 as compared with an increase of 2.1 per cent in the previous quarter (Q2 of FY17)," it said.
Internal debt constituted 92.6 per cent of public debt as at end-December 2016, while marketable securities accounted for 83.6 per cent.