The Hindu Business Line : Mutual funds chasing 91-day T-bills

In demand
Funds have made net purchases of nearly Rs 11,376 cr since April 1.
Put off equity purchases anticipating further corrections.
State Govts also in the fray for picking up short-term treasury bills.

C. Shivkumar

Bangalore, April 9 Mutual funds have begun chasing Government securities and holding off equity purchases anticipating further corrections.

According to data from the Securities Exchange Board of India, funds have made net purchases of close to Rs 11,376 crore since the beginning of this month. For the same period, funds have made net sales of Rs 595 crore of equities, according to the data. Bankers said that some of the unit-linked insurance funds were also chasing Treasury bills.

Most of the debt purchases were short-term Government securities, bankers said. The preference was mostly for short-term securities, especially 91-day Treasury bills. Funds, bankers said, picked up shorter term securities, including T-bills both from the secondary and primary markets. Funds are treated as non-competitive bidders in the RBI’s weekly T-bill auctions.

Driving yields down

MF participation in the T-bill auctions, have resulted in pushing down yields or driving up prices. At last week’s auctions, the non-competitive bidders amounted to Rs 4,500 crore, the entire amount of which was accepted by the RBI at a yield to maturity of 6.94 per cent. But at Wednesday’s auctions, the high notified amount of Rs 6,000 crore in the 91-day T-bill auction, pushed up yields slightly. The auction comprised Rs 3,000 crore of normal issue of T-bills and another Rs 3,000 crore market stabilisation scheme (MSS) securities component.

Non-competitive bid component though remained on the high side, as in the case of last week. Non-competitive bids amounted to Rs 2,422.12, which kept the weighted average yield at 7.06 per cent.

States also queue up

Bankers also said that State Governments were also in the fray for picking up short term treasury bills. States have switched to T-bills instead of maintaining them as cash balances with the RBI. State Government deposits with the RBI were just Rs 41 crore, according to the weekly statistical supplement.

Bankers said that the preference for the 91-day T-bills were largely on account of the high liquidity. This was in addition to the yields. Besides, bankers said that funds preference for 91-day T-bills was also driven by banks’ reluctance to pick up bulk deposits from funds at high yields for short-terms. Banks are flush with deposits and credit growth has remained low. Consequently, few banks were interested in picking up bulk deposits at high costs, ahead of the RBI’s lean season credit policy. Instead, bankers were insisting that funds lock in bulk deposits in instruments like certificates of deposits (CDs) for a minimum period of one year. CDs though are treated as less liquid instruments.

Besides, bankers said the preference for T-bills was also driven by anticipation that short- term yields were likely to soften further in view of the liquidity overhang and the lean season, when credit offtake is normally low.

Moreover, many of the funds anticipate that the equity markets were likely to see a further correction in the coming weeks as corporate results begin trickling in. Liquidating the T-bills at that point of time was expected to generate treasury profits for the funds.

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