Shifting home loan may get less expensive May 14, 2010

Shifting home loan may get less expensive

May 14, 2010

<Weekly Facts
	Close	Change	%Change
BSE Sensex	17,265.87	278.3	1.64%
Re/US$	45.08	0.2	0.51%
Gold Rs/10g	18,140.00	670.0	3.84%
Crude ($/barrel)	80.92	0.9	1.06%
FD Rates (1-Yr)	5.00%-6.50%

Weekly change as on May 13, 2010

Shifting home loan may get less expensive

Impact

The Government may seek changes in the prepayment rules to enable home loan borrowers to shift to cheaper lenders, if the bank from whom the loan is taken from, raises its interest rates soon after disbursing the loan. The Government now wants banks to provide a two-month window to their new borrowers, to shift to some other bank, without a prepayment penalty if they have raised interest rates too quickly after disbursement.

If a bank hikes interest rates within a month of the loan taken by a customer, the borrower should also be allowed to look for cheaper options without paying any charges," a senior Finance Ministry official said. He also mentioned that levying a prepayment charge in such cases would amount to a double penalty.

The Government is not convinced with the bank's argument that allowing easy foreclosure without any penal charges may lead to asset-liability mismatch. But a senior Finance Ministry official counter-argued and explained this by saying, "The average maturity of deposits that a bank holds is for a period of one and half years. If a loan is prepaid within two months, it will not put any strain".

The Finance Ministry is likely to take up the matter with RBI to seek these changes. It is also expected that the banking regulator may discuss the issue with the Indian Banking Association (IBA), and may come with new prepayment norms including fixing the maximum and the minimum amount that a bank may charge.

We believe that, if such a measure is taken by the Finance Ministry, will certainly be in the interest of home loan borrowers and will also prevent banks from hiking interest rates unilaterally and also "luring" borrowers with teaser rates only to revise them immediately. In fact, with teaser rates being the "flavour of the day", banks should be required to hold those rates as advertised for the period indicated.

IIP numbers for March 2010 slow down

Impact

The Index of Industrial Production (IIP) for March 2010 slowed to 13.5% over the last year's figure (March 2009). Nevertheless, this was the sixth consecutive month that the IIP numbers have been in double digits. The quick estimates released by the Central Statistical Organisation (CSO), reveal the following:

Strong manufacturing growth - The manufacturing index, which is the principal component of the IIP, grew by 14.3% over the last year (March 2009).

Growth in sectoral output - Output of capital goods grew over the last year (March 2009) by 27.4%, followed by growth of 12.7% in the output of intermediate goods. Similarly, the output of consumer durables and consumer non-durables also grew by 32.0% and 3.30% respectively.

The 13.5% growth in March has given hopes to Finance Minister, Mr. Pranab Mukherjee, that the economic growth rate this year could surpass the average expectation of 8.5% and that price rise could ease in the months ahead.

We believe that IIP numbers are signalling robustness of the Indian economy, but the slow down in the IIP, is attributed to RBI's stance on increasing policy rates and also to a partial exit of the stimulus package. We also think that the drop in IIP number in March (from 15.1% in February 2010), may cause RBI to refrain from increasing policy rates till its next monetary policy review, scheduled on July 27, 2010. Going forward we feel that as the base effect fades by June 2010, the IIP number would moderate in the range of 8% - 9%.

INTERVIEW

In an interview with the Economic Times, Mr. Sashi Krishnan, Chief Investment Officer at Bajaj Allianz Life Insurance, shared his views on the impact of sovereign debt crisis in Greece and Spain, on the Indian equity markets and also the impact of inflation on the equity market.

On the impact of the sovereign debt crisis in Greece and Spain, on India, he believes that this will have a ripple effect. He believes that India may experience some impact on its trade inflows. Mr Krishnan also mentioned that "as the risk appetite reduces, foreign investors could withdraw from emerging markets, including India". This according to him will increase the volatility in the equity markets, but will make valuations more palatable. In order to ride out the equity market volatility during this period, he recommends investors to stay invested in low beta stocks, or stocks that play on the domestic consumption or infrastructure theme. Doing company analysis, he said, "companies with export linkages to Europe could be in for a couple of tough quarters, as growth in Europe slows down". Hence, in order to hedge risk, over the coming months, he believes that global liquidity will start moving to less risky assets (like gold).

On the impact of inflation on the equity markets, he categorically mentioned that demand-led inflation still poses a worry, especially with signals that manufacturing inflation and wage inflation have returned strongly. However he is of the opinion that softening global commodity prices, falling crude oil prices and easing food inflation on account of a forecasted normal monsoon, will temper any runaway rise in inflation.

AND OTHER NEWS...

Birla Sun Life Mutual Fund launched an open ended equity fund named "Birla Sun Life India Reforms Fund". As per the offer document, the fund is mandated to invest 65% - 100% of the collected corpus, in equity and equity related instruments and upto 35% in debt securities and money market instruments.

The fund will broadly follow a top-down approach of investing and pursue a thematic style by investing in stocks of companies that are expected to benefit from the economic reforms, public sector disinvestment, and increased Government spending.

The fund will follow the flexi cap / opportunities style, since it will not have a sector or market cap bias.

A survey by FICCI (Federation of Indian Chambers of Commerce and Industry), revealed that manufacturing growth is likely to slow down to 11% during April to June 2010, as compared to an estimated 15% expansion in the previous quarter due to rising raw material prices.

After the recent announcement of the appointment of Mr. Yogesh Agarwal, as the Chairman of Pension Fund Regulatory and Development Authority (PFRDA), the pension regulator is planning a massive marketing campaign to revive the New Pension Scheme (NPS) for the unorganised sector. "A committee has already finalised the details of the Rs 10 crore marketing campaign and it would be launched after the new chairman approves it", PFRDA sources said.

CEO of Berkshire Hathaway and legendary investor Warren Buffett, is keen on acquiring a majority stake in a state-owned general insurance company. As per the sources who are involved in planning Mr. Buffett's visit to India next March, he's going to take up the issue with the Union government during his visit.

According to a global survey conducted by the New York-based Nielsen Company in March 2010, consumer confidence was highest in India, followed by Indonesia and Norway

Inflation for the month of April 2010, fell marginally to 9.59% from its earlier level of 9.90% in March 2010.

The Securities and Exchange Board of India (SEBI) will soon allow more currency derivative products, beginning with options.

Mortgage major HDFC Ltd has extended its teaser rate scheme till Jun 30, 2010. Under the scheme, it would offer a fixed rate of 8.25% upto March 2011, 9% for the next one year and floating rate thereafter.

SEBI has asked stock exchanges to display annual reports of listed companies on their websites from fiscal year 2010 onwards. The intention behind such a move, is to enable investors to take more informed decisions.

As "Akshaya Tritiya" (a day traditionally considered auspicious to buy gold) is on May 16, 2010, India Post has launched a one month special discount scheme on gold coins. Customers can now buy these gold coins, at a discount of 6% from the post offices. These coins bear the India Post logo and are available in denominations of 0.5g, 1g, 5g and 8g. The gold coins will also have a certification from Switzerland based gold company - Valcambi. These gold coins will be available for sale till May 31, 2010.

The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), will also hold a special trading session for gold ETFs, this Sunday, on the occasion of "Akshaya Tritiya". The market hours for the special trading session will be from 9:00 am to 3:30 pm.

We recommend investors to buy gold on this auspicious occasion of "Akshaya Tritiya", because we believe that gold is truly "Akshaya", which in Sanskrit means "that which never diminishes".

Finance Minister, Mr. Pranab Mukherjee said the Indian markets cannot remain immune to Euro zones debt problems and will feel the impact if $1-trillion bailout package by the European Union (EU) and the IMF does not inspire confidence. Mr Mukherjee attributed the problem of sovereign debt mess in Euro zones to the initial hiccups in the integration problem of Europe. "If the bailout package does not inspire confidence in the market, being far away, having no physical connectivity, Indian market gets disturbed. This is a problem of the global linkage which cannot be avoided," he said.

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