Re rise likely on Fed cut hope, easy liquidity

gaining strength

The rupee is likely to appreciate further. Since the non-farm payroll data released in the United States has been below expectations, all major currencies have started appreciating against the dollar. This will indirectly impact the rupee movement as well. Since the non-farm payroll data has strengthened hopes of rate cut by the US in its forthcoming policy meeting on September 18, fund flows to emerging markets such as India are expected to continue.

If the rupee appreciates below 40.60, it may lead to demand for dollars from importers, especially oil companies, since crude prices are also on the rise. However, the market expects the RBI to intervene if the rupee falls below 40.50.

Forward premiums will be rangebound this week due to surplus liquidity. They may fall further if the market receives dollar inflows either from institutional investors or exporting companies.

Liquidity: Additional inflows likely

Liquidity is likely to remain surplus this week as well. The foreign exchange inflows are no longer a steady source of funds, at least for the time being. "But they are expected to resume once the global markets stabilise and risk aversion to emerging markets ceases," said a dealer with a foreign bank. If the US Federal Reserve cuts rates, it would be another trigger for funds to flow into the emerging markets including India for higher returns, he added.

Call rates: To rule easy

Call rates are expected to rule easy this week as liquidity is surplus. They may inch up slightly if there is pressure on the rupee to depreciate. The rupee demand will rise if unwinding of the yen carry trade forces institutional investors to liquidate positions in emerging markets. Anticipating advance tax outflows, banks may play safe with liquidity impacting the availability of liquidity in the market in the very short term.

Treasury bills: Cut-off yield steady

The RBI will auction the 91-day and 364-day treasury bills for notified amount of Rs 3,500 crore (Rs 3,000 crore for MSS) and Rs 3,000 crore (Rs 2,000 crore for MSS). The cut-off yield on t-bills is expected to rule around similar levels as in the last week. According to dealers, liquidity is comfortable although advance tax outflows outflows are slated. Liquidity is important as any change is immediately reflected in the short-term interest rates.

Corporate bonds: Corporates to re-enter mart

Most of the issuers who had postponed bond issues earlier are expected to re-enter this week. This includes Power Finance Corporation (Rs 500 crore for 3 year and 5 year at 9.70 per cent and 9.85 per cent, respectively) and Rural Electrification Corporation (10-year bonds at 9.85 per cent). State Bank of India is likely to raise around Rs 2,500 crore through upper tier II issues for 10 years at 10.10 per cent. Yes Bank is in the process of issuing perpetual bonds at 11 per cent.

Many banks and non-banking finance companies are likely to raise funds through certificate of deposits and commercial papers. This is because the interest rates have come down in the benchmark 1-year segment from 9.45 per cent to 9.10 per cent, following excess liquidity.

G-sec: Sentiment cautious

Trading interest in the government securities market will remain cautious even if liquidity remains surplus. Most of the banks have built up a strong portfolio for the quarter ended September. There is therefore a fear that thin trading may drive the yields higher, resulting in losses on banks' books.