Apprehension over Fx, gilt mart runs

Bond players are apprehensive of the trend in the foreign exchange and government securities markets in 2005-06.

"First, there is pressure on the rupee. Then capital inflows may wane at least in the first quarter of the new financial year. Finally, the rupee may even touch 44.25," said Surendra Rosha, head of forex sales at HSBC.

The outlook on government securities is distinctly bearish. There will be pressure on the interest rate due to domestic as well as overseas factors.

The government borrowing programme and the pick up in credit will put pressure on the liquidity which itself may get strained due to the weakening of capital flows, said Partha Mukherjee, head of treasury, UTI Bank.

Amit Bansal, head, treasury, Barclays, said the short end of the maturity in government bonds will feel the pinch more, with the 10-year benchmark paper expected to touch even 7-7.25 per cent.

This might trigger traders' interest in buying bonds at lower levels. Capital inflows will be under pressure if the US Federal Reserve continues to hike rates aggressively.

The rupee on March 31 closed at 43.7400/7500 per dollar, losing a marginal 0.01 per cent in 2004/05 (April-March) against an 8.7 per cent gain in the last fiscal year. The rupee rose nearly 0.2 per cent against the dollar on March 31, the last trading day of the fiscal year.

The 10-year benchmark 7.38 per cent 2015 closed the financial year at 6.67 per cent as against a close of 5.15 per cent on March 31, 2005.

Pubic sector bankers under condition of anonymity said that the domestic interest rate scenario should not be correlated with the international interest rates.

The heavy supply schedule of government papers in the borrowing programme for the new fiscal year has been sweetened with a major chunk of short-term papers.

Long-term papers of 10-14 year maturity comprise floating rate bonds with interest rates being reset every year. Virtually these are one year bonds, bankers said. More than 30 per cent of the papers consist of five-nine year papers.

Therefore, the borrowing programme will focus on short and medium term papers as long term papers are normally picked up by insurance companies and trusts.

On the inflation front, the rate will become moderate given the huge base effect, going forward in the new financial year, bankers said. Liquidity overhang in the system is another source of comfort.