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MACRO ECONOMIC INDICATORS(Rs. Crore)

As on Variation over Variation over YOY %geJuly 12, 2002 the fortnight LRF of March growth

Aggregate Deposits 11,99,104 -4,862 95,744 18.0

Bank credit 6,50,613 2,563 60,891 24.2

Non- food credit 5,91,150 4,107 55,406 24.9

Investment in G-Sec 4,48,275 -8,548 37,099 19.9

Broad money M3 16,16,547 -800 1,16,544 16.8

Reserve money 19/07 3,32,721 -10,472 -5,250 9.3

Net RBI Credit to centre 19/07 1,43,902 -14,785 2,519 -10.8

Ways & means advances 19/07 8,639

WPI (%) 13/07 2.48

Forex Reserves ($bn) 19/07 59.61 5.50

CMYK

g Bullish undertone in gilts market; 10-year

benchmark yield dips to 7.27%

g Yield curve shifts down by 10-17 basis points in

medium and long-end

g Auction of 8.07% 2017 devolves on PDs and RBI

g 10-year paper with 5-year put/call subscribed at

6.72 percent

g OMO auction of short-tenor papers sails through

easily

g On-tap sale of long-tenor papers receives good

response; OMO window closes on second day

g Ample liquidity prevails - Average repo oustanding

exceeds Rs 18,000 crore

g Forex reserves touch a new high of $59.61 bn

HIGHLIGHTS

Economy & Debt Market ReviewVol. 6, No.15

for the fortnight ended 26th July, 2002 (for private circulation only)

GiltNews

PNB Gilts Ltd.5, Sansad Marg, New Delhi-110 001. Visit us at : www.pnbgilts.com


2/8

Gilt News 26th July, 2002

2

Forex Reserves touches $ 59 Billionmark

Forex Reserves of the country have touched anall-time high of $ 59.61 Billion. For the week ended

19th July 2002, the reserves increased by $817

million. The forex Reserves at the start of the

fiscal year 2002-03 were at $54.15 Billion. Since

then the reserves have increased by $ 5.50

billion.

The increase is primarily on account of increase

in foreign currency assets, which have increased

by $5.2 Billion since the beginning of current

fiscal. Increase in the non-resident deposits due

to the relatively low interest rates in US have

contributed to surge in forex reserves. Besides,

some of the increase is also attributable to

revaluation of non-dollar denominated component

of forex reserves.

2 1 1 2 1 1 2 3 1 2 2

Foreign Exchange Reserves

52

53

54

55

56

57

58

59

60

9-M

ar-

02

5-A

pr-

02

2-A

pr-

02

9-A

pr-

02

6-A

pr-

02

3-M

ay-0

2

0-M

ay-0

2

7-M

ay-0

2

4-M

ay-0

2

1-M

ay-0

2

7-J

un-0

2

4-J

un-0

2

1-J

un-0

2

8-J

un-0

2

5-J

ul-02

12

-Ju

l-02

19

-Ju

l-02

$

bn

Aggregate Deposits of scheduled commercial

banks stood at Rs 11,99,104 crore as on July 12.

At this level, it shows an increase of Rs 95,744

crore since the beginning of current fiscal. The

year-on-year (YOY) growth works out to 18.0%

compared to 19.5% in the same period last year.

Bank credit on the other hand continues to grow

during the current fiscal. At Rs 6,50,613 crore it

showed a growth of only Rs 67,713 crore. On YOY

basis also, the growth in credit works out to 24.2%

compared to 14.8% last year. Food credit has

risen by Rs 5,485 crore during the current fiscal

so far. Non-food credit on the other hand has

grown by Rs 55,406 crore during the current fiscal.

The incremental CD (credit-deposit) ratio of banks

during the current fiscal so far works out to 63.4%.

Substantial growth in bank deposits with slow

credit off take during the current year so far

resulted in increase in investments of banks. At

Rs 4,75,804 crore as on July 12, the investments

of banks increased by Rs. 37,535 crore since the

beginning of the current fiscal. In contrast,

investments had increased by Rs 33,188 crore

in the same period last fiscal. However, for the

fortnight ending 12th July 2002, the investments

of the banks decreased by Rs.8, 546 crores.

Broad Money (M3) on YOY basis increased by

16.8% to touch Rs 16,16,547 crore as on July

12, 2002.

Net RBI credit to centre at Rs 1,43,902 crore as

on July 19, showed an increase of Rs 2519 crore

in the financial year so far. This was against an

increase of Rs 14,849 crore in the same period

last year.

The credit to centre decreased by Rs.14, 785

crores during the fortnight ending July 19th

Ways and Means advances to the Central

government as on July 19 stood at Rs 8, 639

crore against the limit of Rs.10, 000 crore.

MONEY MARKETS

Call Money Market

The liquidity hangover of the previous fortnight

continued throughout the current fortnight too.

Despite unscheduled twin auctions aggregating

Rs 7000 crore and aggressive open market


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4/8


4

Yield movement for 91 day and 364 days T-Bills

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

4-Apr-0

2-May-01

30-May-01

27-Jun-01

25-Jul-01

22-Aug-01

19-Sep-01

17-Oct-01

14-Nov-01

12-Dec-01

9-Jan-02

6-Feb-02

6-Mar-02

3-Apr-02

1-May-02

29-May-02

26-Jun-02

24-Jul-02

(%)

91 Day T Bill

364 Day T Bill

Repo Rate

1

Secondary Market

In the secondary market, the total volumes traded

in treasury bills amounted to Rs 2740 crore during

the fortnight. Segment-wise trades in treasury bills

are given in the exhibit. Most of the trades were

in 15-91 and 183-364 days residual maturity

bucket.

SGL Volumes - Treasury Bills

227

1353

219

941

0

200

400

600

800

1000

1200

1400

1600

Upt o 1 4 d ays 1 5-91 d ays 9 2-18 2 d ays 1 83 -3 64 d ays

Residual Maturity

Rs.

Crore

GOVERNMENT SECURITIES

Primary Market

As per the pre-announced auction calendar forthe first half of current fiscal, no auction was

scheduled for the current fortnight. However, given

the surplus liquidity in the system and high WMA

of central government, RBI announced twin

auctions aggregating Rs 7000 crore. While Rs 4000

crore of 8.07% 2017 was offered on multiple-price

basis, another Rs 3000 crore of a new 10-year

paper was offered on uniform-price basis. The 10-

year paper also had put and call options

exercisable on any coupon date on or after 5 years

This was the first ever issuance of Government

Stock with call and put options.

In the pre-auction underwriting, RBI set a cut-off

commission of 2 paisa for the 10-year paper

auction. In contrast, the longer-dated 8.07% 2017

was underwritten at a cut-off commission of 15

paisa.

In the auction of 8.07% 2017, RBI received 229

bids aggregating Rs 6634.60 crore. Out of this,

66 bids aggregating Rs 1521.10 crore were

accepted at a cut-off price of Rs 102.30. The

implicit cut-off yield worked out to 7.80 percent.

Non-competitive bidders subscribed to Rs. 37.31

crore of the paper. Another Rs 1285 crore of the

paper devolved on Primary Dealers towards

364 day T-bill 91 day T billDate of auction 24 July 17 July 24 July

Cut-off price (Rs %) 94.31 98.56 98.56Implicit Yield (%) 6.05 5.86 5.86Wtd avg. Yield (%) 6.04 5.86 5.86Competitive BidsReceived 2545.00 463.00 654.50Competitive Bids accepted 1000.00 250.00 250.00Non-competitive Bids accepted 0.00 0.00 225.00Devolvement on RBI 0.00 0.00 0.00Total bills issued 1000.00 250.00 475.00

(All yields are computed on a 365 day basis)

(Rs Crore)

Details of all the auctions held in the fortnight ended July 26, 2002 have been tabulated as under:


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CMYK

5

fulfillment of underwriting commitments.

Remaining Rs 1156.59 crore devolved on Reserve

Bank of India.

In the auction of 10 year paper (with put/call after

5 years), RBI received 145 bids aggregating Rs

5508 crore. Out of this, 90 bids aggregating Rs

2987.60 crore were accepted at a cut-off of 6.72

percent. The remaining Rs 12.40 crore was

subscribed by non-competitive bidders.

With Rs 7000 crore auction during the fortnight

and the Rs. 1000 crore auction of 364 day treasury

bills, government has completed Rs 72000 crore

of the gross borrowing of the fiscal against thebudget of Rs 1,42,867 crore. Net borrowings have

been completed to the tune of Rs 56734 crore.

(Rs crore)

2002-03 Actuals upto July 26

(Budgeted) 2002-03 2001-02

Gross Borrowings 142867 72000 70750

- Dated issuances 116867 63000 64000

- 364 day T-bills 26000 9000 6750

Redemptions 47008 15266 13422

Net Borrowings 95859 56734 57328

Open Market Operations (OMO)

The surplus liquidity in money markets and

buoyant sentiments in gilts market provided an

opportunity to the apex bank to aggressively

undertake open market operations. In the second

week of the fortnight, RBI announced OMO sale

of two short-tenor papers. Rs 2000 crore of

11.98% 2004 and Rs 1500 crore of 11.90% 2007were offered by RBI through uniform-price based

auction.

In the OMO auction of 11.98% 2004, RBI received

48 bids aggregating Rs 3430 crore. Out of this,

30 bids aggregating Rs 2000 crore were accepted

at a cut-off price of Rs 110.85 (implicit yield of

6.42%). In the auction of 11.90% 2007, RBI

received 47 bids aggregating Rs 1920 crore. Out

of this, 33 bids aggregating Rs 1500 crore were

accepted at a cut-off price of Rs 121.00 (implicit

yield of 6.74%).

The cut-off price in both the papers was very close

to broad market expectations. Given the success

of twin OMO auction and continuing surplus

liquidity, RBI announced on-tap OMO sale of two

long-dated papers immediately after the OMO

auction results announcement. While the quantum

on offer was not disclosed, 8.07% 2017 was

offered at a price of Rs 103.02 and 10.18% 2026

at a price of Rs 121.85.

On the opening day, RBI was able to mop-up Rs

2260 crore through on-tap sale. The longer-tenor

paper 10.18% 2026 was withdrawn from the OMO

window after the first days trading. In contrast,

8.07% 2017 was withdrawn from the OMO window

on the second day. Rs 676.59 crore was mopped-

up on the second day of the OMO on-tap sale.

Thus, during the fortnight, RBI was able to mop-

up Rs 6436.59 crore through its open market

operations. What was significant was that the

entire amount was mobilised without negatively

impacting gilt market sentiments.

With the OMO mobilisation of current fortnight,

the total amount raised by RBI through OMO sales

has risen to Rs 13459 crore during the current

fiscal so far. This is against, Rs 23,175 crore of

securities privately placed/devolved on RBI. Net

monetised deficit during the current year so far

therefore works out to Rs 9716 crore against Rs

4980 crore in the same period previous year.

Private Placement vs OMO sales by RBI

Rs. Crore

Particulars Upto July 27

2002-03 2001-02 2001-02

Total Dated Issuances 63000 64000 114213

PP/devolvement on RBI 23175 21000 28892

Net OMO Sales 13459 16020 30335

Monetisation by RBI 9716 4980 -1443


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6

Secondary Market Developments

In the Government bonds market, security prices

opened the fortnight on a bearish note on accountsof concerns regarding the Indian reaction to the

massacre in Kashmir Valley. Besides, uncertainty

regarding the unscheduled twin-auctions also kept

the sentiments subdued. Buoyant liquidity

conditions and easy call rates again, led to fresh

buying interest in the market ahead of the

auctions. However, profit-booking restricted

significant gains as market was skeptical about

the chances of success of the Rs 4000 crore

auction of 8.07% 2017. These concerns were

reflected in the relatively high underwriting

commission of 15 paisa for the auction of 8.07%

2017. In contrast, the Rs 3000 crore auction of

10-year paper was underwritten at a cut-off

commission of 2 paisa only.

The results of the unscheduled twin auctions were

broadly in line with market expectations. Given

the uncertainty surrounding the success of 8.07%

2017 auction, most players avoided biddingaggressively - due to fear of winners curse -

despite having interest in the paper. Thus, there

was a significant pent-up demand for 8.07% 2017

in the secondary market. Moreover, by devolving

the 15-year paper on PDs and itself, RBI

reaffirmed its stance for softer interest rates. In

post-auction trading, while 6.72% 2012 languished

at cut-off price, the reissued 8.07% 2017 was

traded at a premium.

Later, news of Rs 10300 crore RBI dividend to

central government also perked up market

sentiments. By the end of the first week, 8.07%

2017 had gained about 100 paisa from the cut-off

price. Similarly, other securities also gained 30-

60 paisa from fortnight opening levels. The yield

on a 10 year benchmark 7.40% 2012 fell to 7.33%

by the end of the first week from fortnight opening

level of 7.39%. A significant revival of demand

for longer dated papers of 10-15 year maturity

was witnessed in the market.

Gilts market opened the second week of the

fortnight steady with a positive undertone. Given

the unscheduled twin auctions of previous week,

OMO fears had considerably waned. However,

there was no significant buying pressure either

as players expected profit-booking at every rise.

Besides, with RBI receiving Rs 25067 crore in

repo on July 22, OMO fears again resurfaced.

Later, RBI announced uniform-price based OMO

auctions of 11.98% 2004 and 11.90% 2007. While

the OMO was widely anticipated by the market,

the securities and quantum offered surprised the

market. In view of the limited trading interest in

short-tenor papers, market perceived the OMO

auction to be aimed purely at sucking out excess

liquidity. As a result, market sentiments remained

buoyant after the OMO announcements. Both the

securities offered on OMO auction were fully

subscribed at close to market expectation levels.

Subsequent to the success of OMO sale, RBIannounced on-tap OMO sale of two long-dated

papers. The market was slightly taken aback by

the swiftness with which RBI announced the on-

tap OMO immediately after the earlier OMO

auction results. Consequently, security prices

dropped by 15-20 paisa as the market was

skeptical about the response to the on-tap sale

of long-dated papers. However, the news of good

response to on-tap sale of longer dated papers

and RBI closing the window gave a fillip to marketsentiment. Besides, given the twin auctions

scheduled for the first week of August, there were

no more fears of another OMO. As a result,

security prices slowly inched up with maximum

interest in long-dated papers.

All in all, the fortnight was good for government

bonds as they recorded gains of 100-150 paisa

in the medium and long tenor papers. In terms of


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CMYK

7

yield, the sovereign yield curve shifted down by

10-17 basis points in the medium and long-end.

What is more significant is that the marketabsorption of long dated papers which was

virtually non existent for the past few weeks

revived.

Sovereign Yield Curve

5.80

6.00

6.20

6.40

6.60

6.80

7.00

7.20

7.40

7.60

7.80

8.00

8.20

0 1 2 3 4 5 6 7 8 9 10 11 1 2 13 1 4 1 5 16 1 7 1 8 19 2 0 2 1 22 2 3 2 4 25

Term to Maturity

(%)

27 July 2002

13 July 2002

The daily traded volumes moved in the range of

Rs.2000-6000 crores during the fortnight.

However, on July 24, SGL volumes amounted to

Rs 9588 crore, aided by OMO volumes of Rs5760 crore. The average traded volumes during

the fortnight amounted to Rs 4328 crore.

Dated GOI - SGL Volumes

2502 2361

3437

6519

5657

18332261

3213

9588

53404899

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

15-Jul

16-Jul

17-Jul

18-Jul

19-Jul

20-Jul

22-Jul

23-Jul

24-Jul

25-Jul

26-Jul

Rs.Crore

Trading activity was concentrated in medium and

long-tenor securities. 7.40% GOI 2012, 8.07%

2017, 7.55% 2010, 11.50% GOI 2011 and 9.81%

GOI 2013 were the top five traded securities in

the market during the fortnight

Most Traded Securities

4926

4721

3913

3407

2728

0 1000 2000 3000 4000 5000

7.40% GOI 2012

8.07% GOI 2017

7.55% GOI 2010

11.50% GOI 2011

9.81% GOI 2013

Rs. Crore

Looking ahead, call rates should continue to

remain easy given the current liquidity overhang

coupled with coupon and redemption inflows of

around Rs 6000 crore next fortnight. Forex inflows

remains buoyant and Re is appreciating against

the dollar. The auction outflow of Rs 8000 crore

scheduled for first week of August is unlikely to

result in tightening of liquidity. Moreover, more

and more good quality/AAA rated corporates are

now able to access funds from the market at rates

lower than available from banks. The interest rate

on commercial paper has even dipped below the

bank rate. The yields on Non-SLR paper has

dropped significantly while the volumes traded

have also increased sharply. This has resulted in

narrowing down of spreads between the non-SLR

and sovereign paper. On the fiscal front, revenue

collections of the government have been good

so far. Besides, with the governments decision

to pursue divestment aggressively may yield an

amount of Rs 51300 crore, thus avoiding any

pressure on the fiscal deficit. All this augurs well

for softer interest rates, despite the possibility of

monsoon failure and its consequential impact on

inflation. Most importantly, banks have started

reducing the interest rates on deposits, which is

a clear market reaffirmation of RBIs stance of a

softer interest rate regime.


8/8


PNB Gilts Ltd., 5, Sansad Marg, New Delhi-110 001.Tel. : 332 5831/373 6585/6586. Visit us at : www.pnbgilts.com

For any enquiries contact Sr. Vice President - Research and for dealenquiries contact Vice-President (Dealing)/Access our on-line quotes inthe Bridge News Screen in Page No. 8539

BRANCHESPNB House, Sir P.M. Road, Fort, Mumbai - 400 001. Tel. No. 022-2691812/2693314/15 Fax No. 022-2691811/2692248.

Sudershan Building, 14, Whites Road, Chennai - 600 014. Tel No. 044-8591750/51 Fax No. 044-8591751.6A, Clive Row, Calcutta - 700 001. Tel. No. 033-2210394/2210395 Fax No. 033-2210378.

Kumkum Building, Near Panchwati, C.G. Road, Ahmedabad - 380 006. Tel. No. 079-6423037, 6423058 Fax No. 079-6423106.

Published by PNB Gilts Ltd., 5, Sansad Marg, New Delhi - 110 001. The information and opinions contained herein have been compiled fromsources believed to be reliable. However PNB Gilts Ltd., does not warrant its accuracy or correctness. This should not be construed as an offer tobuy or sell any securities. Portions of this document in part or whole may be reproduced or published provided the source is duly acknowledged.

Date Security Coupon Redemption Total

29-Jul-02 11.30% GOI 2010 508.50 508.50

29-Jul-02 11.00% GOI 2006 165.00 165.00

29-Jul-02 12.29% GOI 2010 491.60 491.60

29-Jul-02 12.32% GOI 2011 677.60 677.60

31-Jul-02 10.82% SDL 2011 60.18 60.18

05-Aug-02 11.25% GOI 2006 6.16 6.16

05-Aug-02 12.75% GOI 2002 63.75 1000.00 1063.75

06-Aug-02 9.40% SDL 2009 11.75 11.75

06-Aug-02 11.68% GOI 2002 146.00 2500.00 2646.00

07-Aug-02 11.43% GOI 2015 342.90 342.90

09-Aug-02 10.03% GOI 2019 100.30 100.30

09-Aug-02 11.80% SDL 2010 23.60 23.60

09-Aug-02 11.70% SDL 2010 33.34 33.34

2630.68 3500.00 5973.44

SPREAD MONITOR

Security YTM (%) Change in Spread over 1 year paper(bps)

TTM 13-Jul 27-Jul YTM (bps) 13-Jul 27-Jul(Yrs) (b/w 13-Jul

&27-Jul)

364 Day T Bill 1.00 6.00 6.03 3

11.40% GOI 2008 6.10 6.89 6.80 -9 89 77

7.55% GOI 2010 7.80 7.17 7.05 -12 117 102

11.50% GOI 2011 9.33 7.44 7.33 -11 144 130

7.40% GOI 2012 9.78 7.35 7.27 -8 135 124

11.03% GOI2012 9.98 7.54 7.39 -15 154 136

9.81% GOI 2013 10.85 7.48 7.37 -11 148 134

9.85% GOI 2015 13.23 7.69 7.55 -14 169 152

10.71% GOI 2016 13.74 7.82 7.65 -17 182 1628.07% GOI 2017 14.48 7.70 7.62 -8 170 159

10.25% GOI 2021 18.85 7.97 7.84 -13 197 181

(Rs. Crore)

CASH FLOWS FOR THE FORTNIGHT ENDING AUGUST 9th, 2002

PNBGILTSLTD

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