In an improved response from the banks, at the special 15-day repo, the Reserve Bank of India (RBI) received five bids for Rs 2,270 crore on Thursday. And, mutual fund players point out that the liquidity position for the mutual funds industry improved as rates on short-term papers eased sharply due to the 100-basis-point cut in banks? cash reserve ratio, announced Wednesday by the RBI.
After the RBI has introduced the special repo tender with a corpus of Rs 20,000 crore to help banks facilitate the liquidity requirements of mutual funds, banks have only raised Rs 5,970 crore through the window.
Nikhil Johri, managing director, ABN Amro Mutual Fund said that the utilisation of special facilities for funds has been comparatively slow as the call money rates have come down due to the one per cent CRR cut by RBI on Wednesday. ?The liqudity position of the MF industry has improved as some the fund houses have received money in their liquid funds,? he said.
It may be mentioned here that the liquidity position of those fund houses have improved who have liquid fund schemes with them. ?After Wednesday?s monetary steps by RBI, we expect the banks to now put in more money in the 15-day special repo tender,? said a dealer with a mutual fund.?
A few mutual funds such as Sundaram Mutual Fund, Canara Robeco Mutual Fund and Kotak Mutual Fund were seen buying papers in the secondary market. ?A few mutual funds must have received some inflows and were seen buying these shorter tenure papers,? said a dealer with a private mutual fund.
The rates in the secondary market also eased 150-200 bps across tenures after RBI cut banks? CRR by another 100 bps Wednesday, thus infusing Rs 40,000 crore in to the banking system.
Indian mutual funds sold a net $1.6 billion of debt this month, the most this year, to meet redemptions from investors worried by the impact of the global credit crisis and a slowing domestic economy. Funds pulled out Rs 3,210 crore from bonds on October 14, the highest this month, the Securities & Exchange Board of India said.
Mutual funds had placed a net Rs 64, 620 crore in bonds in the January-September period. ?Corporates and other investors have started pulling out cash from mutual funds as other sources are drying up,?? said Dhirendra Kumar, managing director at ValueResearch, a mutual fund-tracking firm in New Delhi. Assets managed by debt funds have ?fallen sharply? because of redemptions. Meanwhile yields eased 20 basis points across tenures today after the government had increased the foreign institutional investors investment limit to $6 billion from $3 billion earlier.
?Though a lot of deals didn?t take place today, rates eased today as the sentiments in the market improved,? said a dealer with a private bank. Primary dealers and provident funds were buyers, while mutual funds and a few foreign banks were selling these papers in the market today. Most of the dealers do not expect foreign investors? money to come into the market immediately.
?The yields may not fall further. We expect it to be at these rates itself,? said a primary dealer.