T-bill cut-offs end higher: T-Bill yields also tightened during the week. The cut-offs yields in all three auctions were higher: the 364-daytreasury bill yield tightened from 10.4 per cent to 10.48 per cent, the 14-day bill from 9.16 per cent to 9.42 per cent and the 91-day bill from 9.4 per cent to 9.57 per cent (including seven per cent devolvement on PDs). In the inter-bank repo market, the 14-day repo was being quoted around 9.6 per cent towards the end of the week.

Gilt prices slid down: The tighter liquidity took its toll on the gilt market. Prices of two and three-year securities declined about five paise. Currently, market prices arebelow the RBI OMO price list, and hence, sale on the OMO counter has tapered off. The net inflows during this week are estimated to be about Rs 750 crore. The total amount outstanding in repos has also decline to Rs 231 crore. We do not expect a significant rally unless RBI announces cuts in repo rate or a significant rally unless RBI announces cuts in repo rate or CRR. We believe that the safe option is to continue to be concentrated at the short end.

Disinvestments pick up: The government has raised about Rs 786 crore through sale of VSNL GDRs. The government also sold 74 per cent stake in Andrew Yule to Phoenix AG of Germany for Rs 34.85 crore. It has been reported that the IOC and ONGC have paid Rs 500 crore each to the government as the first tranche for the share swap deal. The total amount expected to be paid by these two companies is estimated to be about Rs 4,700 crore, and the companies are expected to make the remaining payment in fortnightly instalments.

Three states tap themarket: Three states Andhra Pradesh, Goa and Uttar Pradesh issued 10-year State Development Loans carrying 12.50 per cent semi-annual coupon. The tap has been closed. The data on the amount collected has not yet been released.

Corporate paper: Three-month primary commercial paper (CP) yields declined by 10 to 15 basis points to 10.7 per cent, on the back of institutional demand. The rates of one and two-month paper in the secondary market remained at 10-10.1 per cent and 10.5 per cent levels. With call rates staying tight, the upside in CPs appears to be negligible. The lack of top-rated corporate paper issuances has driven these rates significantly below FI yields, despite the higher risk weight. It has been reported that Rs 50 crore of three-year L&T paper has been placed at 13 per centannualised yield. The yield on FI paper of corresponding maturity is about 13.5-13.6 per cnt.

Central Bank has completed its Tier-II issuance. The 63-month paper carrying 13.9 per cent coupon was placed on theissue opening day. Four of the irrigation development schemes promoted by the Mahashtra Government are currently raising resources from the bond market. These issues have targeted to raise over Rs 600 crore (including greenshoe).

Industrial production stays sluggish: The index of industrial production has recorded a growth of 3.2 per cent in December 1998 over December 1997. The growth for April to December 1998 has been pegged at 3.5 per cent over the corresponding period of the previous year. The growth has been mainly in metal products and parts (23 per cent); Transport equipment and parts (21 per cent); paper, printing and publishing (16 per cent); and beverages and Tobacco (14 per cent). We expect the IIP manufacturing growth for the full year to be near four per cent.

(For the week ending February 20, 1999)