Advance tax outflows, profit sales to rein in gilts
Prices of gilts will be rangebound this week. Despite the banking system being flush with surplus funds of close to Rs 19,000 crore and there being no scheduled auction this week, frowns over tax outflows of around Rs 5,000-8,000 crore and profit booking by listed banks will keep gilts in a very narrow range.
While there could be an upside of 15-20 paise in the medium-maturity papers, the possibility of a downside is limited by the fact that players will not want to bring the market down in the run up to the closure of the second quarter.
In case there is a 40-50 paise liquidity-driven rally, which is highly unlikely, the Reserve Bank of India (RBI) may immediately announce an open market operation (OMO) auction to stem things from getting overheated.
Volumes will be crimped as players will not take fresh positions. The average daily volumes could edge lower marginally to Rs 2,500-3,000 crore as against Rs 3,500 crore in the previous week.
Listed banks will look for profit-booking opportunities as quarter-end considerations will spur them to cash in on the slightest of upticks.
The benchmark 7.40 per cent 2012 paper is expected to move in the 7.12-7.17 per cent band. Participants are seen exiting long-end papers as yields on them have come off quiet a bit.
Further, with the inflation creeping up some of the players do not see the possibility of softening of interest rates and are thus getting out of long papers and buying into the medium-tenor securities.
On the other hand, not much activity is expected in the short papers. Most of the trading will be restricted to the medium issues having residual maturity of 10 to 13 years.
