Market is divided over the fate of today's auction of 11.40 per cent 2008 paper. While most of the dealers expect a 45-50 per cent of devolvement on the Reserve Bank of India (RBI), a section of the primary dealers expect the auction to sail through.
Dealers are expecting the cut-off price to be set in the range of Rs 99.60-85. The paper was traded in the range of Rs 99.60-75 in yesterday's trade.
With today's auction, 62 per cent of the total gross government borrowing programme of Rs 1,17,700 crore will be completed.
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The eight-year paper was devolved to the extent of 92 per cent in the earlier auction held on August 31. The central bank itself took a hit 42 per cent on itself while the rest was devolved on the primary dealers.
A primary dealer said, "The liquidity situation in the market is good and continued to remain so following Rs 6,000 crore inflow on account of redemption of 11.40 per cent 2000 paper on September 29."
The comfortable liquidity situation was evident from the oversubscription of the state government loans of Rs 2,107 crore. Dealers said that the state loan was oversubscribed to the extent of Rs 4,000 crore.
However, a senior dealer of a private sector bank offered a different view. "The liquidity position in the market is undoubtedly good. However, the sentiment in the market is poor. Traders do not want to get stuck with dated securities after the ups and downs in the forex market for the last three months," he said.
According to him, the central bank itself is likely to take a devolvement of Rs 1,000 crore of the total amount of Rs 3,000 crore.
The treasury head of another private sector bank said, "RBI is likely to retain the whole oversubscribed amount on the state loan auction with itself. After all, the liquidity situation is not all that comfortable."
An analyst explained, "The primary dealers are likely to get the paper at a low price because of high underwriting fee and the others will wait to get the paper at a lower price in the secondary market."