Yields on government securities are seen declining this financial year too. However, the quantum of softening in yields will not be to the extent it was in the previous two financial years.
The benchmark 10-year, 9.81 per cent government paper came off by 125 basis points in 2002-03 and by around 200 basis points in 2001-02.
In this fiscal the paper is seen coming down 50-75 basis points. Yield on this gilt, which was last dealt at 6.14 per cent on March 31, 2003, is seeing easing to the 5.40-5.65 per cent level.
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Inflation could be a cause for concern if global crude oil prices rise. Liquidity will not be an issue as the market expects the Reserve Bank of India (RBI) to continue its dollar mop-up operations in its quest to build a healthy forex war chest.
Dollar purchases will result in the banking system being flush with funds for the major part of the year.
Foreign exchange inflows have been the saving grace for the market as the liquidity has surged in the last six months of the fiscal. This trend is expected to continue in fiscal 2004.