The aggregate turnover in the wholesale debt market (WDM) declined to a 13-month low of Rs 53,254 crore in May.
In February, aggregate turnover had fallen to a 11-month low at Rs 55,988 crore. The previous aggregate low of Rs 46,285 crore was recorded in April 2001.
The decline in turnover volume has been sharp at 31.1 per cent in a single month over Rs 77,334 crore recorded in April. On a year-on-year basis, it fell by 36.0 per cent over Rs 83,982 crore reported in May 2001.
Two factors hit the sentiment in the government securities market in May. The Reserve Bank of India (RBI), in its credit policy announced on April 29, had left the bank rate unchanged at 6.50 per cent. This was contrary to the market expectation of a 50 basis point cut.
Moreover, market participants expected a 100 basis point reduction in the cash reserve ratio, while the central bank announced a 50 basis point cut.
In addition, by the middle of May, concerns over a war between India and Pakistan hampered the market sentiment.
Money market dealers said that even though the liquidity condition is satisfactory, market participants are not willing to take huge positions as in case the war breaks out, it will be difficult to offload securities.
The subdued market sentiment was reflected in the rise in government paper yields. The yield of the 10-year benchmark paper rose from 7.30 per cent in the beginning of May to 7.70 per cent as on May 31. With a lack of participation by the major players, the daily average volume in WDM dipped to a 14-month low of Rs 2,130 crore. In March 2001, the daily average volume had dipped to Rs 2,032 crore.
The turnover in WDM had reached to an all-time high of Rs 9,47,191 crore in 2001-02, up 121 per cent over Rs 4,28,582 crore in 2000-01. During the financial year ended March 2002, the monthly aggregate turnover had reached a record high of Rs 1,11,736 crore in January 2002.
