According to Crisil, the rating also takes into account the favourable liquidity position of STCI on account of the refinance support provided by Reserve Bank to the primary dealers and its conservative leveraging policies.

"However, these factors will partly offset the possible volatility in earnings due to the inherent nature of the primary dealership business. Moreover, the low level of penetration of debt markets in India could affect the business volume of the company," Crisil said.

According to Icra, the rating considers the interest rate and liquidity risks inherent in the primary dealership operations. "Icra also notes that competition will increase in the short to mdium term as aresult of the likely addition of seven other PDs. These risks are, however, mitigated by the strong capitalisation of STCI, its institutional ownership and the liquidity support available from RBI. The rating also factors in the prudential guidelines laid down by the board of directors of STCI for ensuring minimisation of risks intrinsic to operations," Icra said.

STCI was promoted by the Reserve Bank of India along with select public sector banks and all-India FIs in May 1994. It was set up with the objective of participating in and promoting the market for government securities amd PSU bonds. STCI has a networth of Rs 578 crore as of March 31, 1998 and has reported a net profit of Rs 98.4 crore for the year ended 1997-98.