"The sale of securities through the OMO window continued during the fortnight and an estimated Rs 562 crore was sold mainly in 11.78 per cent 2003 and 12.25 per cent 2008 securities. The total sale through OMO this fiscal is about Rs 18,373 crore," the investment banking arm of ICICI said.

The commentary said that the inflow next fortnight is concentrated in the first week of the fortnight. Net inflows during the next reporting fortnight is estimated at Rs 1,500 crore. "With the zero coupon 1999 security (Rs 3,000) to mature on January 18, liquidity is likely to further improve during January," the report said.

I-Sec has said that the collection through small savings scheme has been reported to be strong. If the trend continues during the next three months, this would help bridge the wideningfiscal deficit. "Another dated security auction is unlikely during the coming fortnight," the I-Sec report said.

The commentary further said that it expects the foreign currency reserves to decline by $25 billion by end-March. Foreign currency reserves have touched $26.84 billion on December 24, an accretion of $865 million during the current fiscal. Despite the current comfortable state of reserves, the worrying factor is that this has been built largely through debt inflows, primarily on account of $4.2-billion Resurgent India Bonds. The current account deficit is expected to be about 2 per cent of GDP.

The commentary said that the overall liquidity is improving next fortnight, and call money is expected to trade in the 8-9 per cent band. Bonds traded in a narrow range during the fortnight with price movements at the short end dictated by call money rates.

"Liquidity is likely to improve over the next few weeks on bond redemptions (Rs 3,000 crore on January 18 and Rs 2,000 crore on February 7).However, the RBI is expected to mop up any liquidity through OMO sales. The long end is unlikely to move significantly and it is advisable to concentrate the portfolio in one-three year securities," I-Sec said.