Narrow Run Presaged Despite Abundance Of Funds

Government securities are expected to rule range-bound despite the surfeit of cash in the banking system.

Even though there is an auction slated on Tuesday, in terms of liquidity, it will not have much of an impact.

Players are in desperate search of a trigger on either side, but the undercurrent remains bullish. Dealers said only fresh triggers can bring in good demand that can lead to price movement.

On the other hand, fundamentally, all factors are in favour of the market. While economic data forecast have been favourable, globally, rate cuts have ensured a soft interest rate regime.

But inflation data is to be watched as last week, it had registered an increase. Some action is expected in terms of price towards the end of the week as the market gets ready for the buyback programme of the government to be held on July 19.

 

The government will be buying high-coupon bonds from public sector banks and in turn offer low-coupon, long-tenor bonds so as to bring down the weighted average cost of its borrowings.

Last week started with good activity in the long tenors which resulted in movements of nearly 20-25 paise.

During mid-week, the rally stopped with the trend ruling flat for some time.

Slowly, the preference shifted to short-term papers as rates in the long term seem to have bottomed out. Short-term papers were in demand as they offered good yield differentials.

In fact, the interest in short papers can be seen as an extension of the attraction in treasury bills, which churned out a good daily turnover of around Rs 170-Rs 490 crore last week. In derivatives, rupee options did not find much takers last week except on the day of their launch.

Market players attribute it to the restrictions imposed by the Reserve Bank of India. They feel that although the product is a novel one, the limitation that banks can only use it for hedging their portfolio and not for trading has reduced its flexibility.

This has spawned just buyers for the product.