`Trade In Gilts, Bills Declined In H1'

Trading volumes in the secondary market for dated securities and treasury bills have fallen in the first half of the current financial year compared with the corresponding period last year, due to uncertainty on interest rates and Reserve Bank of India's preference to keep the rupee stable, according to the latest quarterly review for 1998-99 issued by Credence.

Volumes were lower at Rs 82,918 crore in the period under review compared with Rs 85,579 crore in the corresponding period last year. The fall in volumes has been attributed mainly to dull trading in the 364-day treasury bills.

Although volumes improved in dated securities, the increase was offset by a drastic fall in 364-day treasury bill traded volumes which stood at Rs 8,407 crore compared with Rs 14,866 crore during the first half of last fiscal.

There was a marginal increase in dated securities traded from Rs 64,621 crore to Rs 66,100 crore.

The fall in volumes has also been despite the increase in total outstanding government debt as a result of an increased borrowing programme.

The actual borrowing of the government for this fiscal could also exceed the budgeted gross borrowing programme of around Rs 79,000 crore, the review said.

"The gross fiscal deficit is likely to be widened by Rs 8,000-Rs 10,000 crore on account of the shortfall in customs and excise collections," it said.

The collections have run short of the budgeted target by 8.8 per cent and 14.8 per cent, respectively, for the first five months of the current fiscal, it added.

The Reserve Bank of India (RBI) has resorted to aggressive open market operations (OMO) in the second quarter this fiscal. The central bank sucked out Rs 8,991.46 crore through OMO as against Rs 269 crore in the first quarter.

A higher level of OMO activity was prompted by the increase in support of RBI to the government borrowing and the excess liquidity in the system due to Resurgent India Bonds inflows, the review said.

Shortening of the tenure of papers issued by the government this fiscal has resulted in a reduction in the fiscal weighted average coupon rate on dated central government securities.

It stood at 11.78 per cent till September 30 as against 12.01 per cent for the entire fiscal last year, the report pointed out.

There was a significant jump in the volumes in the term bond market in the second quarter to Rs 7,046 crore from Rs 4,678.25 crore in the first quarter.

The major borrowers were the financial institutions which mopped up Rs 3,954 crore, followed by PSUs and state corporations. The amount included public issues of FIs but not on-tap offerings and direct negotiated deals, the review said.