| LIQUIDITY Inflows at Rs 9152 cr likely |
| Even as the liquidity in the system has been coming down, it may not dampen the market sentiment. There are no major outflows slated next week, while the system may witness inflows to the tune of Rs 9,152 crore. |
| Going forward, the liquidity may ease a bit more with the redemption of government securities. However, the foreign exchange flow is likely to cause some concerns, as the frequency and the quantity have started waning. |
| The interest rate differential between India and the US has narrowed after successive rate hikes by the US Fed. Other Asian countries have raised their interest rates, as well. |
| As the performance of the domestic equity market can now be compared with other emerging Asian markets, India's exclusiveness as a lucrative market has waned. |
| While sources of liquidity remain limited, the demand for liquidity is expected to rise, from the requirements of credit, government borrowings and banks' fund raising for capital adequacy. |
| The system is set to witness an inflow of around Rs 4,000 crore vis-a-vis an outflow of Rs 9,192 crore . |
| MONEY MARKETS Reverse repo bids may go up |
| With no major outflows scheduled next week, the call rate is expected to open in the range of 6.05-6.10 per cent. |
| The market expects the bids for reverse repo to go up a bit, as the auction outgo will come back to the system. Reverse repo is the mechanism through which the RBI absorbs excess liquidity from the system. |
| TREASURY BILLS To see brisk trading |
| The cut-off yield in the auction of treasury bills will be primarily driven by brisk trading in the market. In addition to banks, mutual funds have also joined the t-bills trading spree. |
| This is because mutual funds have to invest the subscriptions to their liquid schemes, which are primarily short-term in nature. |
| There are two treasury bills "" 364 day t-bill and 91-day t-bill, each for Rs 2,000 crore "" to be auctioned this week. The amount forms part of the government borrowings programme as well as the market stabilisation scheme. |
| Recap: The WPI (wholesale price index) scaled a six-week high of 4.92 per cent for the week ended August 12 compared with 4.82 per cent for the week ended August 5. |
| GOVERNMENT SECURITIES Market to be rangebound till auction |
| The government securities market will wait for the announcement of auction. Most of the dealers are of the view that till the auction is over, the market will remain rangebound and consolidate around the current levels. This is principally to help the primary market pick up the papers at low prices. |
| The primary market for government securities involve banks, primary dealers and insurance companies, which are the major bidders in the auction "" the first point of sale of gilts from where the secondary market picks the papers. The secondary market has other participants such as mutual funds and corporates. |
| The market is expecting the government borrowings to comprise a medium-term paper carrying a maturity of 8-10 years and a long-term paper of 25-28 years. |
| These will be issued either towards the end of this week or the beginning of the next week. |
| Globally, oil prices have come down to $70 a barrel from a high of $78 a barrel. The economic data released in the US last week has dampened hopes of further rate hikes by the Fed. Against this backdrop, the 10-year benchmark paper is expected to rule in the range of 8.02-8.10 per cent. |
| Recap: The market rallied as the banks that missed the bus during the auction lapped up government securities. The trigger was the weak US data and no major outflows from the market. |
| CORPORATE BONDS To follow gilt rally |
| The corporate bond market has geared up for action with the rally in the benchmark government securities market. Mutual funds have joined banks in buying short-term papers. |
| Banks and public sector undertakings are expected to tap the market with new issues for raising funds. Power Finance Corporation, Food Corporation of India and Allahabad Bank are some of them. At present, issues from Indian Overseas Bank and Konkan Railway are shopping for funds. |
| Earlier, most of these corporates were waiting for the interest rates to stabilise before they firmed up their plans to raise money. |
| In the secondary market, mutual funds are seen investing in the commercial papers and certificate of deposits to deploy the inflows to their liquid schemes. They are also targeting the one- to three-year papers. |
| Recap: The spread between the 10-year government security and triple A bond of corresponding maturity has narrowed to 75 basis points. The five-year and 10- year triple A bonds are trading in the range of 8.50-8.60 per cent and 8.90-9 per cent, respectively, which is roughly 100 basis points spread over the corresponding gilt. |
| CURRENCY To weaken against dollar |
| The spot rupee may rule with bias towards depreciation. This is because so long as the market has not factored in the weak US data completely in the pricing of the dollar, similar weakness witnessed in the Japanese economy is factored in fully. |
| Therefore, the yen weakness is casting a spell over all Asian currencies, including the rupee. Even as the dollar is weakening across other major currencies, the rupee tends to lose, tracking the Asian currencies. |
| Further, Japanese authorities have also reiterated that any interest rate revisions will be taken gradually after watching the growth figures over a period of time. |
| Incidentally the dollar is also weakening to other major currencies such as the euro and the pound, but on a cross-currency basis, it is appreciating to the yen. Therefore, the spot rupee is likely to depreciate against the dollar. |
| The premia on the forward dollars will continue to rule high. Importers are buying dollars both for oil and non-oil imports. |
| On the other hand, supply is restricted to only dollar sales by exporters. The foreign exchange inflows from the institutional investors to the domestic equity market continue to remain muted. Against this backdrop, the spot rupee may move in the range of 46.50-70 to a dollar. |
| Recap: The spot rupee weakened during the week following the yen depreciation, even as the dollar weakened against all other major currencies globally. The dollar depreciated as the economic data (unemployment and home sales) was below expectations and, thus, indicated a slowdown in the US economy. |
| The premia on the forward dollars continues to remain high owing to importers' buying. |
Top Section
Explore Business Standard