Govt expenditure, mutual funds may boost liquidity

WEEKLY MONEY & CURRENCIES

Liquidity: May ease
Liquidity is likely to improve this week with the end of the outflow towards advance taxes. Banks could easily lend once again as the pressure on them would go off, said a dealer.

Mutual funds are also flush with cash as both domestic and foreign investors that have booked profits in the domestic equity market are parking their money with mutual funds (MFs). MFs, in turn, are lending in the collateralised lending and borrowing market (CLBO) and this is likely to ease CLBO rates.

The sell-off in equities and government securities is likely to generate further funds in the market. Funds from the government expenditure, expected to come into the market before the end of the financial year, are also likely to add to liquidity.

G-sec: Set for a sell-off
The government securities (G-sec) market may further witness a fall in prices following the selling pressure from banks.

Inflation is ruling higher and this has become a concern for the market. "Higher inflation has ruled out any hopes of the interest rate cut by the Reserve bank of India," said a dealer. Excess positions built up by banks have to be shed to avoid losses during the valuation.

According to a banker, the tendency is to exit as soon as possible since market players believe that prices may further fall at the financial year-end.

The benchmark ten-year paper will move in a narrow range of 7.58-7.63 per cent.

Rupee: May dip
The spot rupee is likely to depreciate further as dealers expect a further correction in the local equity market.

"Till the time financial firms globally stabilise, Indian markets taking a cue from global markets will continue to remain volatile," said a dealer.

Pressure on the dollar will emerge from importers, who may rush to book forward dollars. The rush from importers has been triggered by rising crude prices. Exporters, on the other hand, are preferring to wait, expecting the rupee to further depreciate.

However, the spot rupee may open bullish as the dollar inflow will accumulate. In this backdrop, the spot rupee is expected to rule in the range of 40.20-40.80 to a dollar.

These inflows could come into Indian markets only on Tuesday as foreign banks and firms will be on a long holiday, following Good Friday and Easter, till then.

Post-script
The equity market fell by almost 1,000 points during the week before triggering a sharp depreciation in the rupee.