Gilts Glitter As War Fears Recede, Call Soft

Government security prices closed 25-30 paise higher today as market participants felt that the immediate possibility of an India-Pakistan war has receded.

Call rates continued to remain soft amid excess liquidity in the market. The sentiment in the government security market was good and the prices increased by 30-40 paise.

However, at the higher level there was profit-booking and the prices dipped by around 10 paise. A dealer with a private sector bank said: "There will be an auction of Rs 6,000 crore during the week and that is why market participants did not want to book huge positions. We were expecting the auction announcement by the evening."

 

The bid at the repo auction, however, came down drastically today. The Reserve Bank of India received Rs 850 crore at the one-day repo auction as against two bids worth Rs 12,285 crore on Friday.

Money market dealers, however, declined to take this as the deterioration in the liquidity condition. A primary dealer said: "In the beginning of the new reporting fortnight, the demand for overnight money was higher and that is why some of the big public sector banks might not have bid at the repo auction."

All the bids received at the one-day repo auction were accepted at a cut-off rate of six per cent.

At the call money market, availability of funds kept call rates steady in the 6-6.20 per cent range. A dealer with a foreign bank said: "The demand was slightly higher today as public sector banks had enough funds to keep call money rates low."

Call rates are expected to hover around 6-6.50 per cent tomorrow. The government security market may witness a similar trend as today's.

Dealers are expecting gilt prices to go up by 30-40 paise during the initial hours tomorrow, but to come down during the later half of the day due to profit-booking.

The announcement of the auctions, which are slated to be conducted during this week, may also affect the market sentiment.