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Bonds up as VHP changes prayer plan

Indian bonds rose after a weak start on Friday, with mild buying triggered by news that Ramchandra Paramhans had dropped plans to pray on the controversial site near the demolished mosque in Ayodhya.

Immediately after the news, the 11.50 per cent 2011 was traded up to Rs 127, up from Rs 126.30 in early deals. This bond was traded at Rs 126.50 on Thursday evening.

"The Ayodhya news has definitely cheered the market," said a dealer at a state-run bank.

"But do not expect a runaway rally as there are other factors holding traders back," he added.

Bonds had opened weak on fears of a flare-up in communal tensions after the Vishwa Hindu Parishad said on Thursday that it would defy a Supreme Court verdict and hold special prayers at the disputed site in Ayodhya.

But on Friday morning, Paramhans said the plan had been dropped and that he would hold a "peaceful" ritual ceremony elsewhere in Ayodhya.

Traders said their focus would shift back to market factors, which have been weighing on sentiment since the start of the month.

These include worries over the impact of advance tax outflows on money market liquidity and profit-booking at the end of the financial year on March 31.

Advance tax payments by companies and individuals are due to be completed on Friday and outflows into the government's coffers will begin next week. These outflows are estimated at around Rs 100 billion.

A truncated last week of March, in which banks in the principal centre of Mumbai are closed for two days, is also weighing on traders' minds.

Call money was quoted at 6.80-6.90 per cent in mid-morning trade, off early highs of 7.00-7.10 per cent, but firmer than Thursday's close of 6.50-6.65 per cent.

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