 | | Oct 30, 2009 | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex | 16,052.72
| 737.0  | 4.39% | | Re/US$ | 46.57 | 0.5 | 1.01% | | Gold Rs/10g | 16,140.00
| 100.0 | 0.62% | | Crude ($/barrel) | 75.40 | 3.0 | 3.85% | | FD Rates (1-Yr) | 4.75%-6.50% | Weekly change as on Oct 29, 2009 
Impact
The
Reserve Bank of India (RBI) in its October 2009 credit policy has signalled a
first phase of exit from the accommodative policy of the recent past, by taking
the following measures:
- Statutory Liquidity Ratio (SLR) has been increased from 24% to 25% - This
will reduce the liquidity in the monetary system
- Cash Reserve Ratio (CRR) has been left unchanged at 5%
- The repo rate is unchanged at 4.75%
- The reverse repo is unchanged at 3.25%
- Bank rate has been left unchanged at 6%
- GDP growth estimates for the fiscal year 2009-10 is down to 6%. This is
after factoring in a decline in the food grain production and a sustained
increase in the industrial production
With
worries of inflation reaching 6.5% by March 2010, the Central Bank has hinted at
a rate hike in CRR towards the end of December 2009 or early January 2010.
Interest rates are also expected to increase in Q1 of 2010. We
opine that in the current scenario investors should not invest in debt funds as
the interest rates in the economy are expected to move up. This is mainly
because interest rates and bond prices are inversely correlated to each other.
In such a situation, one can invest in Fixed Deposit (FDs) once the interest
rates firm up. Impact With
SEBI's approval for longer trading hours on the stock markets; the broking
house, traders, asset management companies and life insurance companies are to
see a longer day at work. The exchanges will soon be open from 9 am to 5 pm as
against the present timings of 9:55 am to 3:30 pm. The National Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE) have welcomed this
move. As a quick snippet, here are
the timings of some bourses around the world:
| | Local trading hours
(am to pm) | | | Cash | Futures &
Options | | New York
| 9:30 - 4:00
| 6:00 - 5:00
| | London
| 8:00 - 4:20
| 8:00 - 9:00
| | Singapore
| 9:00 - 5:00
| 9:00 - 5:00
| | Tokyo
| 9:00 - 2:00
| 9:00 - 7:00
| | India (now)
| 9:55 - 3:30
| 9:55 - 3:30
| | India (soon) | 9:00 - 5:00 | 9:00 -
5:00 | The
other market segments in India like the currency derivatives market starts at 9
am and ends at 5 pm, while the commodities derivatives market starts at 8 am and
ends at 11:30 pm. The
move of extending the trading hours is intended to align Indian markets with the
international markets, although the time zone issues will continue.
Impact The
Reserve Bank of India (RBI) has announced an increase in provisioning
requirements by banks, for advances to the commercial real estate sector from
the current 0.4% to 1.0%. This is done with a dual intention: - To curb the credit flow to commercial real estate, which was rising
sharply
- To curb the restructuring done by banks for the real estate
sector
Loans to the real estate sector grew by 41.5% in the
12 months up to August 28, 2009, from Rs 68,339 crore to Rs 96,701 crore. This
increase in provisioning requirement by the RBI will make borrowing expensive by
around 75 basis points (approx). The increase in the borrowing cost will be
effectively passed on to the buyers, resulting in commercial real estate prices
moving upwards.
-
Indians
have topped the Nielsen Company's Global Confidence Index in October
2009. Consumer confidence is rising faster in BRIC countries compared to other
markets due to an increase in job prospects. - Banks
get tougher! If your relative is a defaulter in his credit (loan)
repayment, then there are possibilities of you being denied a
loan.
- The
core sectors growth slips to 4% in September. The six core sectors include
cement, coal, steel, electricity, crude oil and petroleum refinery
products.
- Investors
in the recent bull market are falling prey to shady web-sites offering stock
tips. The recommendations on these web-sites are seldom backed by any
research. Such web-sites have seen an increase of 75% in their subscriber
base.
- RBI in its
monetary policy proposed to set a provision for Non Performing Assets (NPAs)
at 70%. This brought the BSE Banking Index down by 4% and contributed to the
fall of 2.31% in the BSE Sensex on Tuesday - October 27, 2009. Banks will have
to set aside a bigger slice of their earnings for non-performing loans, even if
the borrower may not eventually default.
- The
proposed launch of Floating rate bonds by RBI will eliminate the interest
rate risk for investors. The risk of reinvesting interest payments will also be
eliminated by the introduction of STRIPS (Separate Trading of Registered
Interest and Principal Securities).
- The
corporate issuance of Non Convertible Debentures (NCD) with a maturity of
less than 1 year, are currently unregulated. To cover this regulatory gap, RBI
will draft guidelines on the same which will be on its web-site by November
end.
- The
exchange traded currency derivatives which were recently launched, have
caught the imagination of investors, given the rupee-dollar
volatility.
- After
SEBI banning the entry load on mutual funds, Asset Management Companies (AMCs)
have seen a drop in the mobilization of the Assets Under Management (AUM). This
has now resulted in AMCs redrawing their business plans around
PMS.
- The
US economy expanded for the first time since mid -2008, growing at
3.5% in the three months ended in September 2009. Early days, but the impact
can be seen in India.
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