Short-term debt issues on the rise

Certificates of deposit issuances continued to flood the short-term debt market as banks raised funds ahead of advance tax outflows by mid-September, dealers said.

Most issuers anticipate tight liquidity conditions and a fall in demand for such papers once advance tax payments are done. It is estimated that companies will pay around Rs 300 billion as the second instalment of advance tax.

Banks issued around Rs 8.5 billion worth CDs today with different maturities.

The major investors in these CDs were mutual funds as they have excess cash, garnered through their fixed maturity plans.

"Only a few mutual funds were investing in primary issuances. Most of them feel there may be redemptions after two weeks and are holding on to excess cash," said a fund manager.

Dealers are of the opinion this may prevent mutual funds from investing in such papers in the coming weeks.

Demand from mutual funds could slow down on account of redemptions in liquid and debt schemes by banks and corporates to pay advance tax.