Archive for October 6th, 2009

Banks Appease Home Loans with Festival Offers :)

Banks appease home loans with festival offers

Banks appease home loans with festival offers

Banks are coming out with festival schemes on home loans ahead of Diwali.


The move is aimed to increase credit demand.

Meanwhile, deals include teaser rates for initial years, amid some lenders providing alternative to shift to either fixed or floating rates in following years.

Lenders like Canara Bank, Bank of Maharashtra (BoM) and Dena Bank are offering fixed-rate loans for the first five years, and afterward, linking the loans to their prime lending rates.


However, others like Bank of India are offering fixed-rate loans for the first two years.

Besides, SBI is offering fixed rates for the first three years.


Moreover, the competition to gain market share has resulted in a small price war.

Development Bank of Credit introduced a fixed rate of 7.95 per cent for the first year, which is the lowest for the first year, in any case. From the second year onwards, the home rates will be linked to floating rate loans.


BoM and Dena Bank offer a fixed rate of 8 per cent for loans up to Rs 30 lakh in the first two years.

Canara Bank offers 8 per cent in the first year for Rs 30 lakh and SBI offers 8 per cent for the first five years for loans up to Rs 5 lakh.


Summer sales during the existing year were flat due to uncertainties.

Now, builders and lenders are making a fresh pitch to push sales during Diwali through limited period offers.

Most banks have also waived off the processing fee during the festival season.


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Greed and Fear : Factors that Drive the Stock Market !

fear and greed are the two key factors that drive the stock market :)

Everyone knows that fear and greed are the two key factors that drive the stock market.


If you talk to any seasoned investors in the market, they would tell you of the stories of how people got carried away by greed and lost all their money in the process.

Stories about people spooked by β€˜fear factor’ also do the rounds of Dalal Street at regular intervals.

According to a study by SMC Capitals, β€œthe elements of fear and greed are clearly apparent in the trends of allocation of assets by the investors in terms of cash and stocks.’’

The trend, says the study, can be seen at the levels of market cap and bank deposits in the economy.


When there is fear among the investing community, the bank deposits go up.

And, when there is widespread optimism, the market cap levels go up.


β€œIf you look at investor behavior in the last three years,
the pattern is very clear:

the first year was of over-optimism,

the second was of over-pessimism and

now it’s the recovery period.

This trend is clearly visible if you look at the market cap and bank deposits (or the real wealth),’’ says Jagannadham Thunuguntla, equity head of New Delhi-based SMC Capitals.


In the study, SMC has compared the BSE market cap from the period starting January 2007, with the aggregate bank deposits in the bank deposits.

The relative measure of the entire market capitalisation of BSE as a percentage of aggregate bank deposits in the entire banking system demonstrates the mindset of the investor community.


Read the Full Story on The Economic Times

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Economic Indicators Part 2 :)

Hello Friends, just an extension of our yesterday’s blog on economic indicators where we talked about the categories of Economic indicators and relationship between various indicators.



Now in this Blog, we would look upon issues like what current economic indicators reflect about the state of Indian and global economy in coming months, factors that impact the degree of correlation and general effects of the stock maket indices(economic indicators) on the economic performance of the country.


For Indian Markets, we can refer collected data for sensex growth, GDP growth and IIP index growth for 40 quarters over the last decade i.e FY99-FY09.

On the basis of the observation, it is analyzed that there is a correlation between the indicators; however, there is a time lag of at least 3 months between the sensex performance and economic indicators performance.


Out of the 40 time periods being observed, the time lag and the correlation has been reflected in 80% of the cases.

Therefore, on the basis of the study, we can conclude that Indian economy might witness a revival over the next 3 to 6 months.

However, the Indian stock market indices are not only the reflection of the expectation of India Inc performance; the Indian markets are highly influenced by FII inflow too.


Thus, Indian markets not only indicate the future economic conditions of the country but the global liquidity conditions too.

Therefore, if the stock market improvements that started towards the end of the first quarter of 2009 can be further sustained, it may be an indication that economic activity levels might start to improve towards the end of 2009 / beginning of 2010 backed by the correlation theory and time lag of 6 months to 1 year.

The Leading effect of the stock maket indices on the economic performance of the country can be rationalized on the following basis:

1) Futuristic approach of stock prices

Current stock prices reflect the expected operational performance of industry. The price of a stock equals the present value of future dividends.

Hence, stock prices should rise because of higher expected corporate profits, giving the rate of return used by investors to discount future earnings.


Since investor’s expectations about corporate profits depend on expectations about the prospective state of the economy, then stock prices should rise or fall before the actual rise or fall of general economic activity and corporate earnings.

Thus, the stock market is forward-looking, and current prices reflect the future earnings potential, or profitability, of companies.


Since stock prices reflect expectations about profitability and since profitability is directly linked to economic activity, fluctuations in stock prices are thought to lead the direction of the economy.

If the economy is expected to enter into a recession, for example, the stock market will anticipate this by bidding down the prices of stocks.

2) Wealth Creation Effect

The “wealth effect” is also regarded as support for the stock market’s predictive ability.

Since fluctuations in stock prices have a direct effect on aggregate spending, the economy can be predicted from the stock market.

When the stock market is rising, investors’ wealth increase and they spend more.

As a result, the economy expands.


On the contrary, if stock prices are declining, investors experience a decrease in wealth levels and spend less.

This results in slower economic growth.


However, the factors that impact the degree of correlation are:

the variability in interest rate,

the money supply,

the rate of inflation and

the degree of confidence of market participants regarding the state of the economy.


Thus, although the stock market is relatively reliable as a predictor, it should be used with caution and in conjunction with other leading indicators in forecasting the turning points of business cycle.


We can also rationalize the view of 97% economists that U.S economy will be out of recession by end of CY2009.


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