Government security prices are likely to stage short rallies this week followed by profit-booking. Dealers said that a cut in the cash reserve ratio (CRR) effective on May 19 and the expectation of a bank rate cut will boost the sentiment in the market, while anticipation of an auction fear will counter it.
A primary dealer said, "The sentiment in the market has been good despite high call rates following the CRR cut. However, the ways and means advances figures suggest that there is high probability of the Reserve Bank of India (RBI) conducting another auction and hence there may not be much space left for security prices to move up."
Security prices fell by 10-15 paise on Saturday morning as call rates were high around nine per cent. The prices, however, recovered to close five-seven paise higher than Friday's closing as call rates came down to close in the 8.40-8.60 per cent range.
Dealers feel that the aggressive auctions conducted by the central bank during the current fiscal will be the another reason which will keep the security prices in a narrow range.
The chief dealer at a private sector bank said, "The impact of the CRR cut and a possible bank rate cut has already been discounted in the market and there is oversupply of government papers in the market due to the auctions and hence the prices are likely to remain range-bound."
