Banks, MFs putting funds in primary issuances

Banks and mutual funds stepped up their investment in primary issuances as the rates moved up by 5-10 basis points, dealers said.

There was a slew of primary issuance today as banks and few companies rushed to raise funds on fears of liquidity tightening in next few weeks.

"We expect liquidity will tighten by September so, in order to meet banks' short-term requirements certificates of deposit are being issued," said a dealer at a private bank.

"With every primary issue there was further pressure on the other issuers to offer certificates of deposit at 5-10 basis points higher," said a fund manager. Amid increased supplies, investors continued to stay reluctant, pushing rates up 5-10 bps.

SECONDARY MARKET

Trade was dull as most mutual funds and banks invested in primary issues to get better returns, dealers said.

"There were no buyers in secondary market as liquidity is expected to squeeze and they hope to get better rates in near future," said a dealer at fund house.

Mutual funds continued to be major sellers while some banks were on the buying side.

State Bank of India's CDs maturing in May were dealt at 9.10 per cent compared with 8.97 per cent on Monday.

Today's issuances include:

Infrastructure Development Finance Co placed 2.5 bln of rupees 3-month commercial papers at 8.45%.

Tata Motors placed 1 bln rupees of 6.5-month CPs at 8.70%

Inox Air Products placed 250 mln rupees of 3-month CPs at 8.62%.

Allahabad Bank placed 2 bln rupees of 6-month CDs at 8.80%.

The 3-month papers were quoted at 8.55-8.75% today compared with 8.50-8.70% previous.