Crucial Week Ahead For Forward Market

Updated: May 18 2003, 05:30am hrs
The government securities prices edged up to close higher in the longer end maturities during the week ended May 17, 2003, despite the state government bond issue. However, there was a slight fall in the shorter-term maturities. Trading largely remained in a narrow range and was sans action in the four sessions as trading did not take place on Thursday and Friday.

The on-tap state government securities open for subscription from Monday and closed on Tuesday stole the thunder out of the G-Secs market. The 27 state governments raised over Rs 6,474 crore through their 6.40 per cent 10-year paper on-tap loan issues. They were allowed to retain up to 30 per cent of oversubscription of the on-tap issue. The trading remained lower due to Wednesday being the reporting Friday in the wake of holidays. The 10-year 9.81 per cent 2013 paper closed the week higher at 129.57 or at 5.87 per cent.

Despite the on-tap issue ,the G-Sec prices witnessed gains, particularly due to positive sentiments in the forex market, where rupee has gained by 3.5 paise and forwards have posted new lows. The forward premiums for six and 12 months dwindled to close the week at 1 per cent (1.26 per cent) and 1.20 per cent (1.36 per cent) respectively.

During the week, the total turnover was at Rs 16,092.41 crore as against the last weeks turnover of Rs 30,155.35 crore. The total number of trades during the week stood at 2,452 as against the last weeks level of 4,731. The weighted yields on G-Secs with a maturity within 3 years, 3-7 years, 7-10 years and more than 10 years were quoted at 4.96, 5.62, 5.91 and 6.10 per cent respectively. The weighted yields on treasury bills maturing within 90 days, 91-182 days and 183-365 days were quoted at 4.56, 4.55 and 4.63 per cent respectively.

Another important development of the week gone by was that call rates touched the repo cut-off level of 5 per cent on Wednesday. On-tap issue of state government bonds is cited as a reason for the lower liquidity. Repo auctions during the three days of the week amounted to Rs 31,885 crore, which includes Rs 8,750 crore of five-day repos issued on Wednesday.

Rupee has gained 3.5 paise during the week, taking cue from the falling dollar against all major currencies of the world, particularly against its trade rival euro. The rupee ended the week at 47.1450/1500, which is a 21 month high against the greenback.

"Even the Union finance ministers statement that the rupee will fall by 1.43 per cent in its value during 2003-04 due to redemption of Resurgent India Bonds (RIBs) did not have any impact on the market on Monday. Exporters continued selling forwards on sustained gains expected in the rupee next few months, if not more," a dealer said.

The six-months forward premium has touched a new low and an important barrier of 1 per cent. The week ahead is crucial for the forward markets. On the foreign exchange front, India added a hefty $961 million to its reserves during the week ended May 9, 2003, to take the total to $78.56 billion.