  | | January 25, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 20,103.53 | 64.5
| 0.32% | | Re/US$ | 53.69 | 0.7 | 1.29% | | Gold Rs/10g | 30,610.00 | 60.0 | 0.20% | | Crude ($/barrel) | 114.11 | 2.9 | 2.58% | | FD Rates (1-Yr) | 7.50% - 9.00% | Weekly change as on January 24, 2013
*BSE Sensex as on January 25, 2013 | |
Impact 
Many of us often dream and vie for to own our dream home; and to accomplish this dream, often seek a home loan. But the present elevated interest rates have held back many prospective home buyers, as bloated EMIs would affect household budgets. But now to reduce the burden of home loan borrowers a committee of the Reserve Bank of India (RBI) has suggested banks and housing finance companies, to extend the repayment term of their home loan products.
It has been suggested that repayment term of upto 30 years be allowed for fixed rate products, which can thus aid borrowers with reduced Equated Monthly Instalments (EMIs). "The Indian financial system has G-Secs upto 30 years, a benchmark to issue and price 30 year bonds by banks. Banks could, therefore, make efforts to offer longer-tenor fixed rate loans, say upto 30 years which would help reduce the EMIs of the borrowers," the KK Vohra panel which was appointed to the study the feasibility of introducing more long-term fixed interest rate loan products said in its final report.
In order to provide a cushion from adverse fluctuations in interest rates (for both buyers as well as the lenders), the panel is also of the view that there could be an option to fix a reasonable cap and floor (200 or 300 bps) at the time of resetting interest rates, in relation to the interest rate originally charged to the borrower. They are also view that lenders should also introduce hybrid loan products (offering both fixed and floating rates), wherein the fixed rate portion could be greater, for most part of the repayment schedule. Also an astonishing suggestion from the panel is that lenders should be allowed to charge a pre-payment penalty on fixed rate loans. The committee has also suggested that banks and Indian Banks Association should play a prominent role in educating customers regarding possible impact of rate changes on their EMIs.
We are of the view that, that one should refrain opting for a home loan at a fixed rate, although the extension in the repayment period as suggested by the panel would help you bring down your EMI. The view of the panel of levying prepayment penalty is also damaging and therefore does not favour you as home loan borrowers anyway. Although the interest reset provision is good proposal, we believe that taking into account the present interest rate scenario, it would be best to opt for a floating rate home loan as interest rates are likely to scale down gradually from hereon as indicated by RBI in its 3rd quarter mid-review of monetary policy 2012-13.
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Impact
With the U.S. fiscal deal being passed (by the U.S. Senate), confidence has been imbued in the global economy. Likewise although the long-term worries over the Euro zone debt crisis yet remain, the bailout package doled out for Greece and loan restructuring permitted for Spanish banks have infused some stabilisation, by putting the intermediate risk to rest. Also with central banks in the developed economies adopting the easy money policy in support of growth, risk assets have gained attention of Foreign Institutional Investors (FIIs).
In India with reforms being put at the forefront and vital Bills passed in the winter session of the Parliament, Indian equities have been on a flurry since September 2012. As we have entered the year with hopes galore to create wealth, thus far in the month of January 2013 the BSE Sensex has ascended by 2.3%.
FIIs going gung-ho on Indian equities
Data as on January 23, 2013
(Source: ACE MF, PersonalFN Research)
Interestingly the market movement has been supportive of FII flows since they have thus far bought net to the tune of Rs 16,484 crore. Some of the crucial announcement and domestic economic factors such as the following have all propelled FII participation.
But would this roaring participation continue even going forward?
Well, we are of the view that while the FIIs have exuded confidence in Indian equities going forward they'll watchful of:
- How fiscal deficit target (of 5.3%) will be met
- How the Current Account Deficit (CAD) of 5.4% will be narrowed, and whether they could be a Balance of Payment (BoP) problem
- How rating agencies react to the aforementioned twin deficit problem (i.e. what ratings would they assign to India's sovereign rating)
- What the Budget 2013 has to offer
- RBI's monetary policy action
- Further reform measures from the Government
If the Government indeed is successful in treading on the path of fiscal consolidation and even achieve its ambitious target of 4.8% for fiscal year 2013-14, it would further provide FIIs an impetus to participate in Indian equities. Handling the twin deficit problem could also preclude rating agencies from downgrading India's ratings. At present while the subsidy on diesel and most fertilizers has been increased and rates of non-subsidised Liquefied Petroleum Gas (LPG) too have been hiked in an effort to at least be closer to its fiscal deficit target, the repercussions could be inflations remaining over the comfort zone of RBI. This may thus prevent the RBI from reducing policy rates aggressively although it may want to support growth. The Budget 2013 too should not be populist, or else it could be detrimental for the path of fiscal consolidation.
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Impact
Today in the world of financial exuberance and with the market being flooded with host of investment products, what many investors want is, to be in safe hands and a prudent advice to put personal finances in place. Some players in the financial services industry while offering third party investment products, have unfortunately resorted to the practice of pushing products rather than "advising" (taking into account their client needs and risk profiling) them, which has led to several cases of mis-selling and investors feeling betrayed. In case of mutual funds too, with a plethora of mutual fund schemes to invest in, many investors haven't been advised schemes appropriately (taking into account their investment objective, risk profile and investment horizon) infusing in them a feeling being duped, while distributors have made hay - earned good commissions.
But now to correct this anomaly and crack the whip, the capital market regulator- Securities and Exchange Board of India (SEBI) has recently (on January 21, 2013) issued the much awaited regulations for investment advisors (vide a notification in the Gazette of India). To know what are these regulations and to read our view over it, please click here.
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Impact
The rapid real estate development in the country in the last decade has been rather fascinating for one to see and to vie for, to own a dream home. The skyline of cities has changed, with now high rise buildings visible in most areas due to cluster development. The rise in income levels and therefore the urge to elevate standard of living has introduced many to luxury and ultra-luxury living. Also, people have started viewing real estate as an asset class for investing, and not only one to move into a new home to live in. In the backdrop of the interest evinced by many towards real estate, the time has indeed come for regulated development to take place.
The Government now plans to bring to the Real Estate (Regulation and Development) Bill, to the Parliament in the budget session. The Bill has been framed under provisions dealing with "property transactions" in the concurrent list of the Constitution that applies to states, making the proposed legislation more than a model law.
The Real Estate (Regulation and Development) Bill has proposed the following, which intends to protect the interest of property buyers. To know what has been proposed in the said Bill and to know our view over it, please click here.
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- If you own a property in Mumbai, now it may become simpler for you to download your registered property documents. As a part of the e-governance initiative, the Maharashtra Government under the website of the Inspector General - www.igrmaharashtra.gov.in has provided this e-search facility to download your registered property documents.
According to Mr S. Chockalingam, the service has been initiated for documents registered in 14 of the 23 registration offices in Mumbai on a pilot basis, but will soon be extended for all centres across the state. It currently provides details of registered transactions of properties from January 1, 2002, to December 31, 2011, but soon steps will be taken to make available documents registered before 2002 and in 2012.
We are of the view that with the introduction of such a service, citizen would no longer require to depend of real estate agents or make multiple trips to the registrar's office to procure certified hard copies of property transactions. Thus this will reduce the time involved as well as reduce possibility of cheating. Moreover, such a facility could also be of help if one is looking at buying a property in a respective area as he could conduct a thorough search of all records related to the property.
- If you are an Indian living in the Gulf, you could soon take exposure to BSE Sensex futures which will be available on UAE's Dubai Gold & Commodities Exchange (DGCX) from March this year. The BSE Sensex futures will be dollar denominated and can used by individuals for hedging purpose.
We are of the view that, although the said index derivative futures will be soon traded on DGCX, individuals could take exposure strictly for hedging purpose and not indulge in trading in their objective of wealth creation. It is noteworthy that derivative instruments if used unwisely could be hazardous to your wealth and health.
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Fiscal Deficit: When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
Source: Investopedia
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Quote : "Those with the enterprise lack the money and those with the money lack the enterprise to buy stocks when they are cheap." - Benjamin Graham
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