Debt Market Update _ July 14

Announcements below in the Union Budget in July 2014 were the major factors that affected the debt market:

 

  • Banks  were permitted to raise long-term funds for lending to infrastructure sector, with minimum regulatory pre-emption such as CRR, SLR, and Priority Sector Lending (PSL)

 

  • Rate of tax on long-term capital gains increased from 10% to 20% on transfer of units of mutual funds, other than equity-oriented funds. This was done to remove the tax arbitrage opportunity available to mutual funds

 

  • Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes.

 

Inflation as measured by WPI and combined CPI eased to 5.43% (6.01% for May-14) and 7.31% respectively (8.28% for May-14). Although core WPI inflation inched up marginally to 3.88%, core CPI inflation saw a sharp fall from 7.71% for May-14 to 7.39% for Jun-14

 

For many days in July, the overnight rates were above 9%. The main causes for the market rates disturbance were:

 

  • Reduction in the amount of funds that RBI lends under the overnight repo rate to 0.25% of deposits
  • The infrequent or delayed conduct of the term repos for 7-days and 14-days

 

 


Further, July saw the introduction of the new 10-year government security. The new security had a coupon of 8.40% maturing on July 28, 2014. However, it closed at 8.49% (Price – 99.3500 against issue price of Rs 100.00).

As on July 31

T-Bill

CD

1m

8.40%

8.41%

3m

8.59%

8.83%

6m

8.64%

8.93%

1yr

8.67%

9.04%

 

 

 

 

 

 

 

 

As on July 31

G-Sec

Corp bond

3yr

8.40%

9.18%

5yr

8.45%

9.31%

10yr

8.71%

9.23%

15yr

8.64%

9.23%

 

   

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

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