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Informist, Tuesday, Oct. 1, 2024

MUMBAI – India's financial markets are shut on Wednesday for Gandhi Jayanti. On Thursday, gilts may open higher as traders expect a softer tone on monetary policy at the Reserve Bank of India's Monetary Policy Committee meeting next week, dealers said. 

Post market hours, the government reconstituted the MPC with three new external members. It appointed Ram Singh, director of Delhi School of Economics, Saugata Bhattacharya, an economist, and Nagesh Kumar, director and chief executive at Institute for Studies in Industrial Development, to the panel. Three members of the six-member panel are chosen from outside the RBI for a term of four years. The three external members will replace Jayanth Varma, Ashima Goyal, and Shashanka Bhide in the upcoming MPC meeting starting from Monday. Goyal and Varma had voted for a 25-basis-point rate cut in the August meeting, against the majority of the panel, who preferred to keep rates unchanged.

Bond prices and overnight indexed swap rates may take cues from the movement in US Treasury yields and crude oil prices at the open, dealers said. The impact of US data on the interest rate view in the world's largest economy may impact the domestic market.

On Thursday, the one-day call money rate may open near the Reserve Bank of India's repo rate due to demand for funds from banks in early trade to meet the reserve requirements.

BONDS

On Thursday, gilts may open higher as traders look forward to the MPC meeting next week, dealers said. "The one-day lag due to the holiday, leaves a lot for the market to take cues from, but as we approach MPC, bond prices should see gains," a trader at a primary dealership said.  

The market may also take cues from the movement of US Treasury yields. Foreign fund inflows are likely to continue because of the inclusion of Indian bonds in JP Morgan's emerging market bond index after the weightage was increased to 4% on Friday. Any uptick in gilt yields may also prompt purchases by domestic banks, which will have to maintain larger buffers of liquid assets, such as government securities, due to an impending tightening of the guidelines on liquidity coverage ratio.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.70-6.76% on Thursday. On Tuesday, the benchmark paper closed at INR 102.54 or 6.73%.

OIS RATES

On Thursday, swap rates may take cues from the movement in US Treasury yields and crude oil prices, dealers said. The impact of US manufacturing Purchasing Managers' Index reading on the US interest rate view may lend direction to swap rates. Further escalation in the conflict centering on Israel in West Asia may also be a trigger. 

The ongoing conflict in West Asia may soon escalate further as Iran is preparing to "imminently" launch ballistic missiles on Israel, global news agency Associated Press reported Tuesday. The attack, if happens, will bring "severe consequences" for Iran, two US administration officials told AP.

The swap rate in the one-year segment is seen at 6.35-6.53% and in the five-year segment at 5.90-6.10%. On Tuesday, the one-year swap rate closed at 6.38% and the five-year at 6.02%.

CALL

On Thursday, the one-day call money rate may open near the RBI's repo rate due to demand for funds from banks in early trade to meet the reserve requirements. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. On Tuesday, the two-day call money rate ended at 5.75%.

RBI AUCTION

* RBI to auction 91-day T-bills worth INR 70 billion

* RBI to auction 182-day T-bills worth INR 60 billion

* RBI to auction 364-day T-bills worth INR 60 billion

LIQUIDITY

--Total net inflows of INR 84.72 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repos.

* Inflows

--INR 6.00 billion as coupon on state bonds on Wednesday

--INR 99.00 billion as redemption of 91-day T-bills on Thursday

--INR 70.00 billion as redemption of 182-day T-bills on Thursday

--INR 92.84 billion as redemption of 364-day T-bills on Thursday

--INR 16.30 billion as coupon on state bonds on Thursday

* Outflows

--INR 199.42 billion as payment on state bonds on Thursday

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Srijita Bose

Edited by Manisha Baxla

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