Call To Rule In 6-7% Band
Money Market
Call rate is likely to rule between six and seven per cent during the week, owing to a surge in the liquidity levels witnessed towards the fag end of the previous fortnight.
This, coupled with the anticipated inflows starting middle of the month on account of the Resurgent India Bonds, is likely to result in a small rally in security prices at the shorter end, especially after the auction on August 5. There is also a discernible shift in interest to slightly longer-dated stocks, which may extend to the four-year paper after the auction. On Friday last, there were inflows of around Rs 3,200 crore. As on Saturday, there is Rs 6,942 crore locked up in the repos, of which Rs 5,442 crore will flow back on Monday. Abundant liquidity in the system will exert a downward pressure on call rate, notwithstanding the outflow of Rs 2,500 crore on Wednesday at the auction. Considering that yields have been falling in the shorter-end over the past few days, the market expects a cut-off of around 11.70 per cent for the four year paper. It may be recalled that the Reserve Bank of India (RBI) had given a cut-off of 11.75 per cent for the five-year paper on July one, issued three-year paper for 11.55 per cent on-tap on July 17 and given a cut-off yield of 11.95 per cent for the six-year paper on July 23.
In the secondary market, the 11.75 per cent paper maturing in 2003 is currently trading at par and the 11.55 per cent 2001 at an yield of 11.48 per cent. A section of the market is of the view that bidders may ask for the 11.75 per cent security and in the event of not being successful, will pick up the paper from the secondary market, which has been the trend in the last few auctions. "If the cut-off is fixed lower than this, there may be a small devolvement," a dealer opined.
There is also a visible shift in the mood of the market, which, says a market player, is now neutral if not positive. The market seems to be drawing comfort from the fact that there is liquidity aplenty in the system and the government completes around 63 per cent of its gross borrowing programme from the market this week. "The easing liquidity position, which is likely to continue for a while now will translate to a price rise of short-dated stocks by 10-15 paise during the week," said a dealer. On Saturday, the call rate opened at 7.25 per cent and most of the deals were done in the 7.15-7.35 per cent range. The STCI weighted average rate was 7.18 per cent on a turnover of Rs 1,100 crore.