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`Sentiment improves in gilts market'

N.S. Vageesh

CHENNAI, Nov. 20

SENTIMENT has improved in the Government securities market and traders have once again started taking positions, says Mr Arun Kaul, Managing Director of PNB Gilts. Mr Kaul, who was here in connection with a seminar on money markets, said that the positi on was quite bad during the first half of the year but confidence has since returned, he said.

Speaking to Business Line, Mr Kaul said his company had made operating profits in the first half. The PDs, who were well-capitalised and had the holding capacity, were able to see through this bad phase, he added.

PNB Gilts had registered a net profit of Rs 105.84 crore in 1999-2000 _ a performance which was cited by a number of bank chief executives to explain their banks' planned forays into primary dealership in Government securities. The crash in prices of Gov ernment securities in July-August this year had, however, put a brake on their plans.

PNB Gilts, which had come out with its initial public offer of Rs 3.5-crore equity shares of Rs 10 each at a premium of Rs 20 per share in July 2000, has since found its share traded in the Rs 13-14 range.

Mr Kaul conceded that it would be difficult to reach last year's profit levels but expected profits to increase in the next couple of months. He said that the major gains for his company during the previous fiscal had also come during December, January a nd February.

He said that he expected interest rates to improve in the short term, citing the fact that the rupee had stabilised in the wake of IMD inflows and that oil prices were unlikely to go up from current levels. He also did not expect credit pick-up to be la rge in view of the fact that no new projects had come up.

Mr Kaul urged the Government to increase the tax exemption limit under Section 80L for interest on Government securities. He said that such fiscal incentives may improve awareness and enhance the attractiveness of the Government securities market for the retail customer.

There was room for more primary dealers (PDs) even while the existing PDs would also grow bigger, Mr Kaul said. The current level of capitalisation of PDs was still at a low level when compared to the volume of Government securities floating in the marke t, he said.