PNB Gilts, India's only listed standalone primary dealer, swung to a net profit of ₹44.84 crore in the September quarter from a loss a year ago. The turnaround was not driven by higher income, which actually fell 4% sequentially, but by a drastic reduction in losses on fair value changes. Last year, the company booked a ₹140.03 crore loss on this line; this quarter, the loss was just ₹17.71 crore. This marks a clear shift from the extreme volatility that characterised the bond market a year ago.
Benchmark 10-year government bond yields have been elevated, closing near 7.39% recently after the RBI announced liquidity-draining measures and a potential rate hike path. However, the quarter-on-quarter movement from Q1 to Q2 was less chaotic than the year-ago period. For a primary dealer, which makes money from trading bonds and earning the spread between its holdings and funding costs, calmer yield movements mean fewer mark-to-market losses but also fewer opportunities for large trading gains.
The sequential squeeze
While the year-on-year comparison looks strong, the quarterly picture is weaker. Profit before tax fell 44.4% from the June quarter. Net interest income dropped to ₹92.17 crore from ₹102.69 crore. Crucially, the treasury book swung from an ₹18.23 crore gain on fair value changes in Q1 to a ₹17.71 crore loss in Q2. This indicates that the market stabilisation has come with lower core profitability for the intermediary.
The outlook for primary dealers remains tied to the RBI's policy path, which points to further rate hikes and sustained liquidity withdrawal. This environment suggests bond yields may stay high with intermittent volatility. For PNB Gilts and its peers, this implies a phase where catastrophic losses are less likely, but generating consistent trading profits will be challenging. Their earnings will mirror this fragile equilibrium in the bond market's plumbing.