By Manish M. Suvarna
The yields on industrial papers (CP) maturing in 3 months have eased practically 10 basis points in the last couple of weeks owing to large surplus liquidity in the banking method and enhanced demand from mutual funds. Similarly, yields on the 91-day T-bill also moderated 10 basis points in August.
As of September 7, yields on CPs issued by non-banking finance firms (NBFC) maturing in 3 months have been hovering in between 3.50% and 3.65%, and these on papers issued by manufacturing firms have been trading in between 3.35% and 3.50%. This is reduce than 3.65-70% and 3.40-55% yields traded on papers issued by NBFC and manufacturing firms, respectively, in mid-August. The 91-day T-bill reduce-off was at 3.3892% on August 11 and 3.2856% on September 1.
“RBI’s bond and foreign exchange purchases continue to add to the unprecedented level of liquidity surplus, which has increased from about Rs 7 trillion at start of the fiscal to over Rs 11 trillion now. This is exerting downward pressure on the money market and short-end bond yields,” mentioned Pankaj Pathak, fund manager for fixed revenue at Quantum Asset Management.
The liquidity in the banking method has remained in surplus in the previous couple of weeks regardless of the central bank conducting variable price reverse repo (VRRR) auctions. This is simply because the inflows from G-SAP auctions, government spending, redemption, coupons and CIC paybacks have offset the outflows from GST and VRRR auctions.
Currently, the liquidity in the banking method is estimated to be in a surplus of about Rs 8.79 lakh crore.
In August, the Reserve Bank of India (RBI) injected liquidity worth Rs 50,000 crore by way of the obtain of government securities below the Government Securities Acquisition Programme, nonetheless, Rs 5.50 lakh crore has been withdrawn by way of VRRR.
Market participants anticipate that the liquidity in the method is anticipated to stay variety-bound this week due to nearly the very same quantity of inflows and outflows. Kotak Mahindra Bank report showed that the inflows of `99,840 crore is anticipated this week and Rs 1.06 lakh crore outflows can be seen.
Additionally, the demand from fund homes has enhanced substantially due to the fact June due to inflows into shorter finish funds such as duration fund, ultra-quick-term fund, liquid fund, and so forth. Mutual funds are bigger purchasers of quick-term debt papers such as industrial papers and certificates of deposit.
Demand from fund homes also enhanced simply because the investment made by them in CPs have matured in the previous couple of days.
Dealers with brokerage firm mentioned that if such higher liquidity persists in the method then yields on CPs are anticipated to moderate additional. “It would be extremely difficult for the RBI to suck out this excess liquidity on a durable basis without hurting the bond market sentiment. T-Bill and money market rates may remain suppressed in the near term,” Pathak mentioned.