Forex: Problem of plenty
The spot rupee opened higher at 39.76 to a dollar against a closing of 39.90 yesterday, tracking the global markets and buying interest in equity from foreign investors.
It also received a boost from Sebi's clarification on issuance of participatory notes and multiple registrations as foreign institutional investors.
The foreign investors were earlier booking profits at higher levels in response to Sebi's decision to ban the issuance of participatory notes.
The rupee premium on forward dollars, on the other hand, hardened on reported dollar buying by the Reserve Bank of India and foreign banks. Moreover, the exporters sold less dollars in the forward market.
Money: state of surplus
Liquidity remained surplus despite outflows towards the government borrowing program and liquidity absorption through the issuance of dated securities.
The market expects the liquidity to remain within a range of Rs 20,000-25,000 crore (Rs 200 to Rs 250 billion). RBI mopped up Rs 30,1,30 crore (Rs 301.3 billion) through the liquidity adjustment facility.
The call rates fell to a low of 3.75 per cent, while the rates in the collateralised lending and borrowing market remained above 5.90 per cent. The mutual funds lent heavily in the market, while banks borrowed from the CLBO market.
G-sec: rise on repo rate cut expectations
There was buying in government securities, driven by expectations that RBI may effect a 25 basis point cut in the repo and reverse repo rates.
The market anticipation is built on a drop in global oil prices after touching a peak of $90 a barrel and easing of inflationary pressures as shown by wholesale price index. The chances of a hike in the cash reserve ratio have receded after Sebi's clarification on the participatory note issue.
The prices of government securities moved up by 20-25 paise, leading to a fall in yields by about 3-4 basis points. The yield on the ten year benchmark paper closed at 7.86 per cent as against a closing of 7.86 per cent yesterday.
Corporate bonds: Positive outlook triggers activity
Volumes rose today as buyers focused on long-term bonds for better yields after the short-term rates fell sharply.
Yields on short-term papers have fallen by over 50 basis points so far this month, but the yield on 5-year corporate bond eased by just 25 bps.
The total volumes in corporate bonds on the Bombay Stock Exchange were about Rs 381 crore (Rs 3.81 billion) on Tuesday compared with Rs 113 crore (Rs 1.13 billion) on the previous day. Bonds with maturity up to five years were the most bought.
Investors also preferred long-term bonds as these are impacted lesser by the changes in interest rates and CRR compared with short-term papers.
There was no fresh issuance of bonds and commercial paper as the market participants are awaiting cues from the monetary policy review scheduled next week.
Global markets: Yen appreciates
Yen fell the most against the euro as a rebound in global stocks encouraged investors to resume buying higher-yielding assets though carry trades, wherein market players borrowed in yen to invest in the markets. It fell to $114.85 against 114.55 on Monday.
Pound and euro ruled at $2.0472 and $1.4254 respectively.
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