Security Prices Crash Reversing A Month-Long Rally

After more than a month-long rally, the government security prices fell by Rs 2.50 to Rs 3 at the long end of the market during this week. Today the fall was sharp -- in the range of Re 1-1.25.

The 10-year paper yield, which was around 7.20 per cent at the end of the last week, rose to 7.35 per cent today.

Dealers, however, declined to term the dip in prices (or rise in yield) as a reversal of the trend and attributed the fall in prices to the cautious approach adopted by market participants ahead of the budget.

Sharukh Wadia, senior vice-president and head-treasury, IndusInd Bank, said, "One cannot term it a reversal of trend. Prices fell because of profit-booking and the absence of many of the market participants. Trading volumes are low in the market. It could be a cause of concern, if the prices dipped amid normal volume of trading."

 

The daily trading volume which was on an average Rs 3,000 crore in the current month before the start of the week has been halved. Dealers have also said that the teething problem associated with the recently launched screen-based trading system also barred a few big players to trade at their normal levels and caused the dip in prices.

Sudhir M Joshi, treasurer, HDFC Bank, feels that the current fall in prices is a natural consequence following a sharp rally. "Even in the equity market, prices dip after a sharp rally," he said. Joshi also said that the rally was partly due to the repo rate cut expectation which was not realised till date. He feels that the prices can rally only if the repo rate is cut, otherwise it will stabilise around the current levels.

Dealers across the board said that the liquidity is adequate and they feel that the Reserve Bank of India will continue its easy money policy at least till the end of the current financial year.