Secondary mart activity looking up

OUTLOOK/CORPORATE BONDS

After a long spell, secondary market activity in corporate bonds is looking up. A major part of the market comprising primary dealers, banks and mutual funds stepped in last week for value buying "" and earning a decent spread over gilts.

While the volumes went up, the spread between triple A-rated five-year paper and corresponding gilt does not change much and continues to hover around 70-75 basis points.

Buying interest in corporate bonds surfaced following the rally in gilts and a clutch of triggers such as liquidity, deferral of stabilisation bonds and lack of open market operations by the Reserve Bank of India.

Dealers said the buying opportunity in bonds was good with valuations scraping the bottom. Meantime, many primary issues are expected to hit the market this week.

The National Power Corporation is likely to raise around Rs 820 crore through a 10- year issue, while the Gas Authority of India Ltd is in the process of mopping up Rs 300 crore with a greenshoe option of another Rs 300 crore.

The interest rate for the eight-year issue of GAIL is to be book built in the range of 5.85-6.25 per cent. With the year end near, dealers said banks and financial institutions are on the look out to book quick profits.

Also, corporate bond portfolios have ample room for fresh exposure as banks have pared their exposure following the private placement guidelines jointly issued by the Securities and Exchange Board of India and the RBI.

Commercial paper mart flat

The commercial paper (CP) market continues to remain dormant. This time, however, the reason is different. According to CP subscribers, corporates have stopped going for short issues owing to the fiscal year end.

However, they foresee some papers coming up once the new financial borrowing programme is put in place. The CP market has ceased to be active as corporates could raise funds through short-term demand loans.

Things changed when banks were asked to maintain a single prime lending rate.

Following this diktat, they revised their lending rates and the retail sector could avail of loans at cheaper rates.

This was not the case before, which is why corporates used to flock the CP and bond marts.