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Bonds Rebound

The eased border tension lead to the sharp recovery in bond prices with the fall 10-year benchmark yield to 7.85% levels during the week. And with eased liquidity and unlikely sizeable outflows, the government securities should remain strong.

The eased border tension lead to the sharp recovery in bond prices, with broad-based participation from investors and traders as well. The yield on the benchmark 10-year 11.50% GOI fell to 7.85% levels during the week before closing the week at 7.92%. During the week, the illiquid instruments too caught market fancy as players anticipated the yields on actively traded instruments to bottom out from their historic lows. For instance the 11.43% 2015 GOI yields 23 basis points above the 2015 GOI carrying 9.85 percent coupon. Even in terms of volumes, the 11.43% instrument recorded volumes of Rs 175 crore as against mere Rs 10 crore on last Friday.

But the forex market remained subdued during the week as the moderate demand for greenback saw the rupee slipping to intra-day low of Rs 48.33 which eventually got support from dollar supplies from banks. While the forex reserves at a high of 48 billion US$ has been bolstering a strong rupee, the rising oil prices could wipe out the contraction in India's trade deficit on account of sharp drop in oil prices, post US attacks.

At the short-end of the market, the inflows on account of CRR rate cut, saw tepid demand for funds from banks, and the call rates hovered in narrow range. That the liquidity in the market got boost was reflected in the RBI's repo auctions getting sizeable subscription worth Rs 8700 crore almost after a month. Further thin trade in overnight market due to bank strike also evinced interest in the repo deals.

Numbers Start Speaking… Headed by a increase in the income from agriculture, domestic supplies, construction and financial services sector, India' national income grew a robust 5.3 percent during the second quarter ended September 2001 as against 4.4 percent in the first quarter of the current fiscal year. Even the exports, which have been a victim of US attacks, inched up by 3.29 percent during November 01 as against last year's figures. But the fiscal deficit remains a concern at 68 percent of the budgeted targets, while the revenue collections stand at 47 percent and with only three months left to meet these targets, the total expenditure side stands at 50 percent of the estimated amounts.

With comfortable liquidity and the absence of any sizeable outflows, the government securities should remain strong, notwithstanding the central bank's intervention to correct the sharp variations in yields, as in the past. However, the market sentiment will still be vulnerable to border movements in the short-term.