Informist, Thursday, Dec 16, 2021

By Vishal Sangani

MUMBAI – Rates on three-month commercial papers of manufacturing companies rose today because of low demand from mutual funds amid narrowing of liquidity surplus, dealers said.

Demand from mutual funds were low as they have parked a large amount of funds in ultra short-term CPs of non-banking finance companies. They are holding back their investments to maintain liquidity to invest in such issuances in the coming days.

Non-bank lenders have raised funds through ultra short-term CPs for clients looking to subscribe to initial public offerings of Metro Brands Ltd, C.E. Info systems Ltd, Shriram Properties Ltd, Data Patterns (India) Ltd and Medplus Health Services Ltd.

Fund houses typically invest in such papers of companies as they offer better yields in a shorter period.

According to market participants, fund houses have about 562 bln rupees invested in ultra short-term CPs.

Rates on three-month CPs of non-bank finance companies were flat at 4.10-4.30%, while those on papers of manufacturing companies were up at 3.70-3.90% as against 3.65-3.85% on Wednesday.

Liquidity in the banking system is estimated to be in a surplus of over 7.80 trln rupees as against 8.23 trln rupees on Wednesday.

Liquidity surplus is expected to narrow more in the coming days due to outflows of around 1.2-1.5 trln rupees as advance tax payments for Oct-Dec, between Wednesday and today.

Corporate entities pay 15% of their estimated tax liability for the financial year in Apr-Jun, 30% each in the next two quarters, and the rest by Mar 15.

Rates on short-term debt papers also rose today due to sharp surge in rates in the inter-bank call money and third-party repo rate, dealers said.

As call money rates crossed 4% intraday, some banks rushed to borrow funds in a panic, while few lenders started holding funds on the view that rates will rise further, a dealer said.

The inter-bank call rate surged to 4.50% today as banks avoided lending due to a strike by state-owned banks as well as firm demand for funds from banks to meet the advance tax outflows, dealers said.

Banking services in the country have been hit with transactions and operations affected, as employees of state-owned banks began their two-day strike today to protest against the government's decision to privatise two state-run banks.

Fundraising through CPs declined today because of low market participation due to low requirement for funds and surge in rates, dealers said.

So far today, CPs aggregating 3.25 bln rupees were issued, as against 10.50 bln rupees sold on Wednesday.

On the other hand, banks did not issue any certificate of deposit today as there is no immediate need for funds owing high surplus liquidity in the banking system and low credit growth.

Rates on three-month CDs were quoted at 3.55-3.70%.

--Primary market

* Godrej Industries, Kotak Mahindra Prime, Tata Motors Finance, HDFC Securities, and Tata Capital Financial Services raised funds through CPs.

--Secondary market

* Axis Bank's CD maturing on Jan 28 was dealt two times at a weighted average yield of 3.5997%

* Indian Oil Corp's CP maturing on Dec 24 was dealt at a weighted average yield of 3.5981%

Following are volumes at 1530 IST in the secondary market for short-term debt, in bln rupees, as detailed by the Clearing Corp of India's F-TRAC platform:

NOTE: Details of the deals have been received from market sources.

End

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

Edited by Maheswaran Parameswaran

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