Gilt prices fall as UTI sells securities

MUMBAI, October 8: The Unit Trust of India (UTI) has instructed its debt market brokers to start looking for buyers as it wants to sell o...

MUMBAI, October 8: The Unit Trust of India (UTI) has instructed its debt market brokers to start looking for buyers as it wants to sell off its government of India securities (gilts), brokers handling business for UTI said on Thursday. Analysts interpreted this as a move to meet redemption pressure of US-64.

Dealers said that the mutual fund behemoth has apparently targeted to sell Rs 150 crore of government securities today which led to a crash in prices of government securities across the board. The most affected security was the three-year and the five-year paper as the yields of both these securities went up by 17 and 15 basis points, respectively.

Bankers said that they are not averse to buy US-64 at the end of the month in a bid to bail out the scheme which is facing an erosion of it net asset value (NAV). "We will not put in money now. But at the end of the month we might consider to invest some funds," a treasury chief in a leading public sector bank said.

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On Wednesday, there were rumours thatthe State Bank of India has pumped in Rs 500 crore into the flaghip scheme of UTI. However, SBI officials have denied such a move. According to sources, the SBI investment in the US-64 is not very big and the bank does not want to get out of it.

The UTI has assured banks and Financial Institutions that they will be provided a return of 14 per cent and need not redeem their holdings. Dealers said the UTI has instructed brokers to sell government securities in lots of Rs 25-30 crore. "Brokers have been asked to syndicate and bring the buyers to UTI so that the prices do not crash," a dealer familiar with the transactions said. Dealers said that the UTI will strike deals with the large publlic sector banks in "direct deals" so that the market sentiments are not affected.

However, today sentiments turned negative soon after word spread that the mutual fund behemoth had entered the market to sell securities to meet redemptions of US-64. Dealers said that the UTI was resorting to distress sale and the mainbuyers were nationalised banks. "But foreign and private banks might have been marginal buyers," a dealer in the debt market.