Archive for the ‘interest rates’ Category

HOW IMPORTANT IS INTEREST RATE?

Essentially, interest is nothing more than the cost someone pays for the use of someone else’s money. In India, an individual willing to purchase a home uses bank’s money (through a mortgage) and in return pays interest to the bank for the privilege or the credit card user borrows money for the short term in order to buy something right away. But the very question that comes to everyone’s mind is how to determine where the rates are heading & what impact will it have?

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So in order to find where the interest rates are heading all one needs to do is to look at the deposits & loans advances of the banks. If banks credit growth is more than its deposits then banks may raise the deposit rates or may increase the lending rates in order to match the asset & liability mismatch. When the Central Bank (RBI) feels that the credit growth has started picking up & is higher than its target levels, RBI tinkers with its policy rates gives signals to the commercial banks to review the interest rates be it on the deposit front or on the lending front.

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Effects of the rising interest rates On individuals

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The first indirect effect of an increased rate is that banks increase the rates that they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if they carry a floating interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay their EMI’s, and when these installments become more expensive, households are left with less disposable income.

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On the Corporates financials

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Corporates too borrow money from banks to run and expand their operations. When the banks make borrowing more expensive, corporates may  not borrow at all or may not borrow at the same pace that they were doing when the rates were lower. Less business spending can slow down the growth of a company, resulting in decreases in profit.

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Even businesses are also indirectly affected as a result of the actions of the individual consumers as individuals are left with less disposable income which affects the company’s top & bottom lines (that is, revenue and profits). Apart from having an indirect affect businesses are affected in a more direct way as well.

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On GDP Growth

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The government essentially has two weapons in its arsenal to help guide the economy towards a path of stable growth without excessive inflation; monetary policy and fiscal policy. Fiscal policy comes from the government in the form of taxation and federal budgeting policies. While fiscal policy can be very effective in specific cases to spur growth in the economy, most market watchers look to monetary policy to do most of the heavy lifting in keeping the economy in a stable growth pattern. Monetary policy is defined as any action to limit or increase the amount of money that is circulating in the economy. That means the central bank (RBI) can make money easier or harder to come by, thereby encouraging spending to spur the economy and constricting access to capital when growth rates seem to be approaching unsustainable levels.

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Stock Price Effects

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Clearly, changes in the rates affect the behavior of consumers and business; hence the stock market is also affected. Remember that one method of valuing a company is to take the sum of all the expected future cash flows from that company discounted back to the present. To arrive at a stock’s price, take the sum of the future discounted cash flow and divide it by the number of shares available. This price fluctuates as a result of the different expectations that people have about the company at different times and are willing to buy or sell shares at different prices. If the company is seen as cutting back on its growth spending or is making less profit – either through higher debt expenses or less revenue from consumers then, the estimated amount of future cash flows will drop. All else being equal, this will lower the price of the company’s stock.

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Investment Effects

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With a lowered expectation in the growth and future cash flows of the company, investors will not get as much growth from stock price appreciation, making stock ownership less desirable. Furthermore, investing in stocks can be viewed as too risky as compared to other investments. When the central bank raises its rate, newly offered government securities, such T- bills and bonds, are often viewed as the safest investments and will usually experience a corresponding increase in interest rates. In other words, the “risk-free” rate of return goes up, making these investments more desirable.

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Conclusion

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We should keep in mind, however, that these factors and results are all interrelated. What we described above are very broad interactions, which can play out in innumerable ways. Interest rates are not the only determinant of stock prices and there are many considerations that go into stock prices and the general trend of the market – an increased interest rate is only one of them. Therefore, one can never say with confidence that an interest rate hike will have an overall negative effect on stock prices.

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Stay Tuned for More Updates :)

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How To Get Started in Online Investing? Final Part

Hello Friends here we come up with an extension of our previous blog “How To Get Started in Online Investing?” Part 1.

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How To Get Started in Online Investing?

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In previous blog, we have touched upon the questions, any beginner investors do have in their mind while going for investing.

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At the same time we had also tried to look in previous blog that what is Online Trading, resources needed first of all to invest online, few steps to start investing online and how SMC ONLINE helps investors in reaping the benefits of online trading.

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In this Blog, we would try to discuss about what are the further steps an investors need to take once the initial registrations are done with.

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Once the registration formalities are done with, you would be required to load your online investing trading account with funds.

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Once Funds would be deposited you would need to look out for the stocks on which you would like to invest prima facie.

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One thing you should bear in mind that before investing, you should do the in-depth research about the company’s profile, performances and services.

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In this respect investing firms like SMC ONLINE comes to your rescue usually by helping you with their excellent research support, stocks recommendations and quality statistics.

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These things are really very important while you invest in buying the shares of any company.

As a wise investor you should keep your eyes open, and don’t blindly trust anyone.

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Another very important thing is RISK FACTOR.

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You’ll have to take the risk in terms of investing your money in the stock market.

Stock market is a bit similar to gambling.

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But there is a big difference between the risk and calculated risk.

For a beginner, you should only go for calculated risk.

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Don’t put your entire money in terms of buying the shares of a new company, even if the future potential of that company seems very high.

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Start slowly, understand the market, earn some decent amount of money first of all and then go for big trading.

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Once you have gotten started, you should start by learning a little bit about chart reading.

If you can read the charts you will have a good idea what is going on.

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And as I said earlier, I would conclude this topic by saying that any beginner investor should look for a broker firm that gives good value for money with their commission fees.

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🙂

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Stay Tuned for more and more on this 🙂

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However For More latest Industry,Stock Market and Economy News Updates, Click Here

Weekly Update of The Market (08th-12th February)

Hello Friends, here, we bring you the weekly overview of the Indian as well as of the Global economy and  latest global business and industry updates.

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Weekly Update of The Market (08th-12th February)

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After starting the year on a good note & Indices making fresh highs within few weeks many Asian markets have corrected between 7 to 10%.

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The global sell off over sovereign debt problems in Europe and an unexpected rise in jobless claims in US put investors on the defensive mode.

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The anxiety about sovereign debt in Greece, Portugal and Spain sparked a sell-off in the Euro & has led strength to US dollar.

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Foreign investors sell off is an outcome of dollar-carry-trade unwinding as when they borrowed the dollar was cheap & now it is recovering.

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Investors viewed the markets in year 2010 with confidence in view of recovery gaining momentum is now shaken over the debt problems, nascent economic recovery & confidence of the governments that stand behind the euro.

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Efforts of China to curb lending preventing overheating in economy also pose a risk to derail the global recovery.

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Back at home, the effect of turmoil in the international market also made government to think its strategy on ambitious disinvestment programme.

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Lukewarm response to the NTPC, the much awaited issue managed to get subscription of just 1.2 times on its closing day.

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The maximum bid of 20.87 crore shares was put by Indian institution under the first time adopted French Auction route.

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This has challenged the finance Ministry hopes on the proceeds from disinvestments to make up the sliding revenue & rising expenditure.

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While it looks that PSU disinvestment may not yield desired results on market weakness, the 3G auction i.e. expected to garner Rs. 35,000 crore could be postponed to next fiscal year.

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The fate of some of the IPO’s like NMDC, Satluj Jal Vidyut Nigam Ltd and Rural Electrification Corporation that are on the disinvestment agenda before March 31, looks tough to sail through, if the stock markets do not rise and big investors do not come back.

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On the contrary, Banks like Bank of Baroda & Indian Bank that were expected to raise money overseas have put now their plans on hold.

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The good news from the external sector continued as the data showed a 9.3% annual increase in exports in December to $14.6 billion, a second consecutive month rise.

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While imports increased by 27.2% from a year earlier to $24.75 billion.

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Food inflation remained at high levels & rose to 17.56% in the week ended 23 January 2010 from 17.40% in the previous week on the back of rising pulses & potato prices.

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Markets are likely to take a closer view of the advance estimates on economic growth for the current fiscal ending March 2010 scheduled to be released on Monday.

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In the days to come an activity in the sectors like railways, fertiliser, textiles, pharma, education, power and infrastructure may be seen on expected positive policy announcements and budgetary sops.

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It was clearly mentioned last week that world markets are going in downtrend and one should be careful in such a scenario and that one should be moving in cash.

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Now the markets have taken a very sharp fall last week due to rise in Dollar Index and fall in all asset classes.

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The coming week might see some counter rally from lower levels.

Nifty faces resistance between 4900-5000 levels and Sensex between 16400-17000 levels.

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If we talk about commodity markets then one can see that strengthening dollar and lack of firm global cues had pressurized commodities prices to move southward.

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Investors are selling riskier assets and putting their money in dollar as a safe haven buying.

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Debt concerns facing Greece, Portugal and Spain coupled with dollar index which is trading above the mark of 80 is most likely to compel commodities to trade lower.

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French and euro zone GDP, USD advance retail sales, USD U. of Michigan Confidence will give further direction to commodities.

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Investors should keep an eye on gold – silver ratio.

It was 58:1 few months back, now reached to 67:1 on MCX, heading towards the level of 70:1.

It is demonstrating more selling in silver.

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🙂

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Stay Tuned for More on weekly updates.

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

Moneywise…Be Wise ;)

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If you find yourself asking the question –

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Why should I Save ?

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Why should I Invest ?

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Where do I Invest ?

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Who would Guide me to take informed decision on my Investments ?

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…then look no further !

Why SMC?

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SMC Group, a leading Financial services provider in India, a vertically integrated investment solutions company, with a pan-india presence is there to guide you and provide complete investment solutions to you.

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SMC Group, having rich experience of more then two decades in financial markets, is one of the largest & most reputed investment solutions company that provides a wide range of services to its client base of more than 5, 50,000 clients with presence in more then 1500 cities.

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SMC Online, an unit of SMC Group, is one stop financial investment portal for investor’s all financial needs.

Investors can trade online in Equities, FNO, Currency Futures, Commodities, apply online for IPOs, and invest online in Mutual Funds.

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SMC is :

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a) 4th Largest broking house of India in terms of trading terminals (Source: Dun and Bradsheet, 2008)

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b) 5th largest distributor of Initial Public Offering (IPOs) in retail (Source: Prime Data Ranking)

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c) Awarded ‘Fastest Growing Retail Distribution Network in Financial Services’ (Source: Business Sphere, 2008)

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d) Recipient of ‘Major Volume Driver Award’ from BSE for last three years consecutively.

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e) Nominated among the top three in the CNBC Optimix Financial Services Award 2008 under National Level Retail Category.

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f) One of the largest Proprietary Arbitrage Desk doing risk free arbitrage in equities & commodities.

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g) Commanding turnover of more then 3% in equity market, 4% in commodity market and 10% in DGCX.

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h) Transparent and professional management.

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j) Relentless focus on investor care.

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k) World class in-house research facilities providing research support to investors.

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l) All financial products and services under one roof.

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🙂

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Next Blog we would try to read more about the other SMC’s investment products and services.

Stay Tuned for more on this 🙂

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To know more about the SMC Products and Services, click here.

Farmers in Upbeat Mood over Prospects of Commercial Crops

Hello Friends here we come up with the Latest Agri Commodities updates from various parts of the globe.

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Farmers in Upbeat Mood over Prospects of Commercial Crops

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Farmers in upbeat mood over prospects of commercial crops

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Vagaries of nature may have dampened the mood of farmers in the district of Guntur in Andhra Pradesh with fears lingering over decrease in the yield, but the first signs in the yield of commercial crops are already indicating towards a record production.

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The prolonged drought which delayed the sowing operations in kharif last year meant that the acreage has decreased by about 20,000 acres.

The year 2008-2009, the paddy yield has shot up to 12.96 MT in 2009-2010.

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The drought, however, seems to have hit the prospects of cotton farmers as the yield had been reduced by 1.25 lakh MT.

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As against the total yield of 6.61 lakh MT in the year 2008-2009, the yield has fallen to 5.36 lakh MT in the year 2009-2010.

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In comparison, chilli farmers are smiling as both the acreage and production have shot up considerably.

The yield has shot up by 40,000 MT and the acreage too has increased by about 40,000 hectares.

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In the year 2008-2009, statistics available with the Agriculture Department showed that, chilli was sown in 63, 628 hectares and the cultivable area went up by 67, 867 hectares.

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In Other major Commodities Update, there is a news of soyabeans and corn rice rising the most last week and on the other news, sugar prices surging up by Rs 14/kg in Kerala after the subsidy rollback by state govt.

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Soybeans, Corn Rise Ahead of U.S. Forecasts for Crop Reserves:

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Soybeans rose the most in almost a week on speculation that U.S. crop reserves may be lower than earlier estimates.

Corn and wheat also advanced.

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Soybeans for March delivery rose as much as 13.25 cents, or 1.5 percent, on the Chicago Board of Trade, the biggest intraday gain since Feb. 2.

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The U.S. Department of Agriculture is expected to cut its projection for soybeans reserves before the 2010 harvests to 221 million bushels in a report on Feb. 9, from the 245 million estimated last month, a Bloomberg News survey showed.

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Subsidy rollback pushes sugar prices by Rs 14/kg in Kerala:

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Kerala government’s recent decision to stop Rs 28-crore subsidy to its grocery retailing arm Supplyco has pushed sugar prices by around Rs 14 per kg in Supplyco’s outfits.

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Though, sugar prices in state-run shops is still lower than the open market price of around Rs 45 per kg or even Nafed-fixed price of Rs 41 per kg, but low stocks have minimized the benefit of low prices.

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please Click Here

ECBs and FCCBs Dropped 6% in Dec 2009 !

external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) have dropped 6% in December 2009

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Total approvals received by Indian companies to raise capital by way of external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs) have dropped 6% in December 2009 to $1.56 billion as against $1.66 billion in December 2008.

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This is as per the data released by the Reserve Bank of India (RBI).

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Total approvals received by Indian companies to raise capital by ECBs and FCCBs stood at $2.35 billion in November 2009.

There were about 68 deals in December 2009, out of which three deals were by way of FCCBs.

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Daimler India Commercial Vehicles Pvt Ltd raised $402 million by way of ECBs for new projects for a maturity period of eight years and 11 months.

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“The ECB market is definitely looking bullish for 2010, however the robustness will not be the way it was in 2007.

Indian banks are also not lending to the corporates here.

Hence, there will be appetite for foreign funds. However, there is a challenge on the forex fluctuation risk as well,” noted Jagannadham Thunuguntla, equity head with SMC Capital.

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According to market analysts, more Indian companies are going to take the ECB route to raise funds, with the interest rates heading northwards in India.

Currently there is also more demand for short-term funds.

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