One teases, the other eases

Teaser and step-up home loans may look similar in the beginning, but they work out differently in the later years

There have been a lot of changes in the Indian loan market. As the slowdown impact fades away, banks and financial institutions are once again battling to attract the attention of potential borrowers. This has led to low-rate loans becoming increasingly popular.

On one hand all big lenders have introduced loans that are fixed for first few years and then align to market rates. At the same time, there is a product that offers payment convenience to borrowers. It is called step-up loans, this product allows customer to pay smaller equated monthly instalments (EMIs) initially and higher in the later years.

TEASER LOANS
As the name suggests, these are loans that look attractive at first glance as the interest rate for the first two-three years are fixed as well as low. But there is an apprehension that it may hurt the borrower when the interest rates align to the market. These are linked to the prime lending rate or the benchmark rate of a bank.

For instance, a 15-year home loan that has 8 per cent rate of interest for the first year and 8.5 per cent for the next two years. Beyond that the rates will be reset to 1 per cent below the prime lending rate (PLR) of the bank.

STEP-UP EMI LOAN
This product involves a situation where the loan is structured in such a way that the EMI is low for the initial period and then will rise. For example, a loan of Rs 11 lakh available for 15 years, where for the first three years, the EMI would be Rs 7,500 a month, and would later rise to Rs 13,000 a month. The loan is structured for people who have the potential to earn more as they progress in their jobs. It works on the presumption that the higher EMI can be afforded at a later stage.
 

CHECKLIST

Extent of discount in rates

Period of the benefit

Reset clause of the interest rate and other conditions

Prepayment options and charges

Penalties on shifting the loan or total repayment

DIFFERENCES
At first sight, both these loans might look similar but scratch the surface and the differences emerge. In a teaser loan, there is no surety that the loan interest rate and the EMI will rise, depending on the markets. If the overall interest rates continue to remain low, the EMI will not change drastically.

But if the initial rate is very low, then such a situation is unlikely and the rate could rise. For example - If the rate of interest offered on a teaser loan is initially 7 per cent when the prevailing rate is 11 per cent, then there is a very high chance that the rate on conversion will be higher.

A step-up EMI loan, however, is guaranteed to raise the amount that the individual has to pay after the initial time period is over, so there is unlikely to be any unpleasant surprise on the downside, because the benefit is already taken by the low initial monthly payment.

It is also very difficult to plan for a teaser loan, as no one can correctly predict the interest rate movement. Also, higher the time period for which the initial rates are fixed, the greater the uncertainty. On the other hand, when it comes to a step-up EMI loan, adequate planning is possible.

CHOOSING
A step-up EMI loan should be considered only when there is going to be a certain rise in the income of the individual that will enable future payments. A step-up EMI loan is usually suitable when a person is in the initial stage of working life.

When it comes to a teaser loan, the working of the actual rate to be charged after the initial low-rate period is over, is important. A lower spread, as in two per cent below PLR than 1 per cent below PLR, helps. There can also be a choice of this loan when the rate for the first few years is either very low as compared to the prevailing rate or that there is a long period for which the loan will be kept at a lower rate when the prevailing market conditions are in the high interest zone.

Source: http://www.smartinvestor.in/pf/pfNewsDetail.php?pg=news&newsid=15449&pgtitle=newsdet

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For investors, 2009 was easy. Now comes 2010

For some people, investing in 2009 was easy -- just put your money into oversold riskier assets and watch them rise. It looks like 2010 could be a lot more difficult, requiring selection and market timing to bring in the best results.

In early March this year, investors decided that a) the financial system was not going to collapse into a new Great Depression and b) as a result, riskier assets such as stocks and high-yielding bonds had sold off too much.

The gains of 2009 -- as much as 30 percent for world stocks year-to-date, 72 percent since early March -- came in the main from across-the-board buying.

The more sold-off the asset had been, the higher it rose as investors almost indiscriminately stampeded out of what had by then become virtually zero-yielding cash funds in favor of any yield they could find.

It was essentially triggered by authorities making clear they would not let another major bank go under, a la Lehman Brothers, and by central banks pumping liquidity into the system.

Entering the new year, however, a lot of this has changed. Large price rises have eaten up what were seen as historic opportunities and central banks are preparing to haul back the liquidity. Some tight 2009 correlations are already breaking down, leaving investors to work a bit harder for their buck.

"2010 is going to be a year of discrimination with a very long bias towards quality," said Bob Parker, vice chairman of Credit Suisse's asset management arm.

The need for more selective thinking also comes from the state of the global economy, which although improving, is both uneven and fragile. Investors have become more cautious about the investment backdrop as a result, a caution intensified by debt problems in Dubai, Greece, Spain and elsewhere.

"Cyclical tailwinds and structural headwinds," is how William De Vijlder, global chief investment officer of Fortis Investments, described the current investment climate.

Quality please
What this means for equities is that investors are likely to be much more selective in what they buy, even if they do still believe that stocks will rally.

Reuters polls showed on Wednesday that most investors are expecting equities to continue rising next year, although at nothing like the same rate they have been.

A quality pick, Credit Suisse's Parker said, would be a company with low leverage, a high dividend and the expectation of keeping it, free cash flow, and a strong market share also with the ability to keep it.

Wealth manager Banque de Luxembourg has a similar slant, seeing defensives such as utilities attracting attention.

"It makes a lot of sense to go out of things that are very cyclical and to go into things that are more defensive and pay interesting dividends," said Guy Wagner, the bank's chief investment officer.

And as investors get picky about stocks, the same is likely to go for regions and other asset classes.

While emerging markets remain a favourite for many investors in 2010, focus is mainly on fiscally sound countries in Asia, such as China, rather than on, say, eastern Europe.

"(There will be) more differentiation rather than just buying an asset class or region," said Wayne Bowers, chief executive officer for Northern Trust Global Investments' international division.

Northern Trust on Wednesday unveiled a euro zone government inflation-linked bond fund but constructed its benchmark to exclude Greece and Italy, two of the area's weaker elements.

In effect, rather than just go underweight on those bonds, that said the fund simply wanted nothing to do with them.

What if?
The big risk to this "be picky" scenario is that the assumptions about 2010's economic performance turn out to be false.

If -- and it is a big if -- global growth were to take off sharply, riskier assets would most likely continue the climb that they have seen this year.

True, such growth would bring with it earlier interest rates hikes and a quicker end to liquidity-pumping exercises by central banks.

But the reasons would be positive, and the resulting sell off in government bonds would drive money into a broad swathe of equities and the like.

It is not expected to happen. But then again, who predicted the booming risk market of 2009 this time last year?

Source : Reuters : http://www.moneycontrol.com/news/economy/for-investors-2009-was-easy-now-comes-2010_431409.html

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2010: Key political risks facing Asian mkts

Asia weathered the economic storms of 2009 remarkably well, but the performance of regional markets next year depends heavily on whether the continent can steer a course through some treacherous political risks.

The difficult relationship between Washington and Beijing

China will face intensifying pressure in 2010 to let the yuan appreciate. But Beijing will not want to put economic growth at risk by letting the currency rise too quickly, and does not appreciate being told what to do by Washington or anyone else.

In the United States, meanwhile, yuan weakness is regarded as a protectionist policy that threatens the U.S. recovery.

Washington may retaliate by imposing more trade restrictions, like the tariffs on Chinese tyres announced in September, sparking a tit-for-tat trade war. And there is also the danger that Beijing's backing of regimes that Washington finds unpalatable flares up into a political confrontation.

Most analysts say Washington and Beijing are painfully aware of the risks and would step back from the brink before any dispute threatened the global economy. But the two countries have yet to find a way to communicate comfortably as partners. The risk of a misunderstanding or sudden chill in relations is real.

What to watch for:

-- The battle over the yuan. Will Beijing let it appreciate, and if not, will Washington throw a tantrum?

-- Protectionism and trade tariffs. If President Barack Obama imposes more tariffs, under pressure from Congress and domestic industry, expect sparks to fly.

-- Any disputes arising from China's dealings with North Korea, Myanmar, Iran and other "rogue states".

Post-stimulus hangover: Asset bubbles and capital controls

Asia is leading the world out of recession, which means Asian governments are among the first to confront a key policy problem -- how to time their exit from the vast stimulus packages that helped keep them afloat during the global economic crisis.

If governments withdraw stimulus too soon, they could topple back into stagnation. And if China falls into this trap, the impact on the global economy could be dire.

But keep policy too loose for too long and they risk not just resurgent inflation but also potentially catastrophic asset price bubbles, as plentiful credit sparks a scramble for property and equities. The danger of China's economy being derailed by a burst property bubble is a key concern for 2010.

Another risk for investors is that countries trying to prevent bubbles and control inflows of "hot money" tighten capital controls and try to lock in foreign cash.

Two more political issues complicate the dilemma.

First, unless governments coordinate their exit plans, there is a major risk of unexpected spillover effects. But the crisis demonstrated the lack of global governance bodies able to handle international policy coordination, and while G20 members have promised to move in step, it is more likely their stimulus exit will be dictated by national interest alone.

Second, disagreements could also erupt within countries, between governments focused on safeguarding growth and central banks fearful of inflation and bubbles. That could lead to bad decisions, and make policy hard to forecast.

What to watch for:

-- All eyes are on China, key engine of global growth since the financial crisis hit. Can it steer a course through the policy perils? If it stumbles, the tremors will be global.

-- Much of Asia faces property bubble risks, with Hong Kong and Singapore particularly in focus.

-- India and Indonesia are two key countries where capital controls could be tightened, spooking investors.

-- The next G20 summits are in June in Canada and November in South Korea. Coordination of exit strategy will be a key theme.

-- Disagreements between the government and central bank are already an issue in Japan. South Korea and India, among others, may also see policy friction in 2010.

Thorny political transitions

In 2009, Asia smoothly negotiated several potentially tricky elections and transitions of power, although the victory of the Democratic Party in Japan's elections after decades in opposition produced some market volatility. Things may be tougher in 2010.

Australian Prime Minister Kevin Rudd is widely expected to win another term, with the only question being the timing of the election. But elections in the Philippines and Sri Lanka are harder to call.

Moreover, two important Asian heads of state are ailing and there is no certainty who or what will come after them.

Thailand's 82-year-old King Bhumibol Adulyadej has been in hospital since September, another complication in the long-running political crisis that has riven the country. Many analysts expect instability to get even worse after his reign ends -- giving Thai markets a rough ride. But most say there is little risk of contagion in other markets.

If North Korean leader Kim Jong-il dies in 2010, by contrast, the tremors will be felt in South Korea, Japan and beyond.

Many analysts say Kim's death could herald the collapse of the regime in Pyongyang, leading possibly to prolonged civil war in North Korea, aggressive moves against the South, or the sudden reunification of the Korean peninsula. In all of these cases, the likely market reaction would be strongly negative.

What to watch for:

-- The health of North Korea's Kim and Thailand's king will be closely watched, and could unsettle markets.

-- Populist pre-election pledges in Sri Lanka and the Philippines may result in economic problems later in the year.

Afpak tremors start to trouble investors

Long-running instability and widespread violence in Afghanistan and Pakistan rarely register on the radar screen of investors. But that may change in 2010.

Firstly, with Obama facing mid-term polls in November, and with effective defeat in the war in Afghanistan still possible in 2010, his strategy may become a central campaign issue and could even cost him a majority in the House of Representatives if things go badly.

Secondly, the decisive victory of the Congress party in India's 2009 elections was another good-news story for markets that could be threatened if militants based in Pakistan provoke a confrontation again, following the bloody 2008 Mumbai attacks.

Analysts expect al Qaeda and its allies to again try to spark conflict between the nuclear-armed neighbours. And Pakistan's weak government, under threat on several fronts, may have its own reasons to focus popular anger on India.

What to watch for:

-- Evidence of whether Obama's troop surge is making a difference, or whether his Afghan policy comes to be regarded as an expensive failure. In the latter scenario, he will be highly vulnerable going into the mid-term elections.

-- The state of India-Pakistan relations, and the risk of conflict if Pakistan-based militants once again launch a major attack on Indian soil.

Social unrest packs a belated punch

Many analysts predicted that the global economic crisis would unleash mass unrest in several countries around the world, with the potential to topple governments. They were mostly wrong. In particular, forecasts that China's leadership could be shaken by serious unrest proved to be way off the mark.

But unemployment is a lagging indicator. Even as the global economy moves out of crisis, many countries will see jobless numbers and social hardship continuing to rise.

Another spark that could ignite unrest would be inflation in food and fuel prices. The global crisis put the brakes on a dramatic surge in commodity prices that is likely to resume as global growth resumes.

What to watch for:

-- The doomsday scenario for markets would be mass unrest across China that threatens to topple the government. Most analysts see the possibility of this as extremely low in 2010, but any upsurge in unrest in China would rattle investors.

-- India, Indonesia, Thailand and Vietnam are other key emerging markets where unrest could hamper economic reform and dent markets if instability flares in 2010.

Source : Reuters : http://www.moneycontrol.com/news/world-news/2010-key-political-risks-facing-asian-mkts_432016.html

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Flashback: How the markets fared in 2009

2009 will go down in history as one of the best for Indian equity markets, after 1993 and 1999—this year, they have emerged among the top-four performing markets in the world. CNBC-TV18's Varinder Bansal and Vidhi Godiawala report.

It was the calm after the storm, and a much-needed one at that. After the carnage witnessed in 2008, 2009 saw the global equity markets calming down and the Indian markets made the most of this, becoming one of the top four performers in the world.

Foreign institutional investors played their part. They pumped in nearly USD 17 billion over the year. Of this, nearly USD 7 billion came from QIPs, USD 3.3 billion came from IPOs, and over USD 3 billion came from ADRs and GDRs.

Helping the India markets along were sectors like metals, automobiles, and technology.

Girish Paranjpe, ED and Joint CEO, Wipro, said, "We have demonstrated that we are a very resilient sector and we are able to manage demand fluctuations and manage margins very well. That should be a matter of great satisfaction for investors in this sector."

The tech index rose 130%, and the auto index rose 200%, but both these performance were eclipsed by the metals index, which surged 230% over the year.

Jindal Steel & Power led the way, gaining nearly 380% followed by Sterlite, which rose 225%, SAIL which rose 205%, Hindalco, which rose 200%, and Tata Steel which gained 180%.

And 2010 should be a good year as well.

Naveen Jindal, Executive VC and MD, JSPL, said, "There is going to be huge demand for steel as per capita steel consumption is still quite low in India—its almost 14th of Chinese steel consumption. Steel prices are depressed as of now but I feel we are concentrating more on reducing our cost of production also but it is a temporary phase."

The banking sector also bounced back smartly from 2008's drubbing. Most banking stocks gained around 100% each in 2009 but walking away with the honours are IndusInd Bank with a 270% rise, Central Bank, up 240%, and Yes Bank, with a 233% rise.

Yes Bank says this has been on the back of a strong business performance.

Rana Kapoor, Founder, MD and CEO, Yes Bank, said, "We have been deriving approximately 48-50% from non interest income sources which are fairly well diversified across treasury, across advisory, transactional banking and branch banking."

However, not all sectors had a ball. Some heavyweights like HUL, Idea, and DLF posted just modest gains. The telecom sector took the worst beating, as tariff wars kept investors away.

Over the year, Reliance Communications fell 20%, and Bharti Airtel was down 10%.

Akhil Gupta, MD, Bharti Enterprises, said, "On telecom, surely the price wars have some pressure on the tariffs but what we mean is that they must be sustainable tariffs for everybody to grow in this business."

CEOs are confident that 2010 will be a good year, after all, they have survived the upheavals in late-2008, and the uncertainty of 2009. But analysts are not so gung-ho. They say that while 2009 has given strong returns to the brave, 2010 may not see a sustained bull run, as markets consolidate.

Source: CNBC-TV18 : http://www.moneycontrol.com/news/cnbc-tv18-analyst-markets/indian-markets-boom2009-an-analysis_432585.html

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7 of top 10 stocks slip off charts in 10 years

Top stocks by market value don't ensure best returns and neither provide a stamp of safety. Even the principal investment in them is not guaranteed.

More Pictures

The first decade of the millennium has once again proved that big is not always beautiful when it comes to stock purchases and every investment fad takes its toll.

Between 2000 and 2009, seven of the top 10 companies have fallen off the list. Also, many darlings of yesteryears such as Pentamedia Graphics, DSQ Software and Silverline have vanished from portfolios.

New listings such as mobile phone leader Bharti Airtel and government-owned utility NTPC have caught the investors' fancy, while companies such as Wipro, Hindustan Unilever and Tata Communications - formerly Videsh Sanchar Nigam - are trailing in rankings, an ETIG study shows.

"The number of stocks to choose from has increased," says Hitesh Agarwal, head of research at Angel Broking. "It has also attracted more money into the system."

Reliance Industries (RIL), run by Mukesh Ambani, Infosys Technologies, mentored by NR Narayana Murthy, and the government-owned ONGC are the three that have managed to weather storms in the decade created by the burst of the dotcom bubble, political turbulence, and the credit squeeze after Lehman Brothers collapsed in 2008.

The biggest wealth creator among the three firms that figure in the top 10 in both 2000 and 2009 is RIL, which topped the chart with 30% compound annual growth rate (CAGR) in market value over 10 years. The actual market value added by RIL is a phenomenal Rs 3.1 lakh crore, or around $66 billion, and Rs 2.2 lakh crore by ONGC.

The stock performances were not in isolation, but were accompanied by an unprecedented growth in the real economy where manufacturing boomed, services flourished and consumers gobbled up everything from mobile phones to BMW cars.

During the past decade, the Indian economy tripled in size while the combined value of all companies on BSE disproportionately rose over six-fold to around Rs 57 lakh crore.

The star of the decade was the once ugly duckling, the state-owned power equipment maker Bharat Heavy Electricals, as the latest infrastructure fad set in a few years ago, which is still running its course.

"The sectors, which are likely to perform in the next 4-5 years can be infrastructure-related firms," says Tarun Sisodia, director & head of research at Anand Rathi Financial Services. "As government spending is likely to be allocated more for infrastructure development, this will have a positive impact on companies." BHEL's market value rose 35% CAGR in the decade, as its market value rose almost 20 times from just Rs 5,500 crore in January 2000. This has prompted many firms with a bit of infrastructure in their name raise millions of dollars in IPOs without any business running.

In 2000, a year before the dotcom crash, more than a quarter of the top 25 companies by market value were technology companies, followed by oil & gas.

Currently, metal & mining firms, once shunned by fund managers as "just a commodity business", dominate the top 25 list of companies by market cap.

Will the fad for infrastructure companies face the same fate as that of technology and there could be some repeat of big companies in the next decade too?

"Although the number of stocks have increased manifold, institutions still prefer the top few companies," says Ajay Parmar, head of institutional equities at Emkay Global Financial Services.

 

Source: 26 Dec 2009, 0700 hrs IST, Shikha Sharma, ET Bureau

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Stocks trader's favoured the most in 2009: An analysis

Some stocks have had a great run in 2009. They have attracted traders and investors for the year round. CNBC-TV18's Varinder Bansal reports,

These stocks are only punters delight – the way they have moved for the entire year with gains of anywhere between 2,000%. The marketcap of these stocks are well above most of the stocks we talk on the channel.

Kwality Dairy: Biggest winner of 2009?
 
Kwality Diary, a company with a market cap of Rs 2,000 crore, has gained nearly 2,000% in 2009. Looking at the one-year chart, the stock was at a price of Rs 5.5. It went to as high as Rs 1,360 and then there was a stock spilt from 10 to 1 and now the stock is trading around Rs 100.

On the financials front, FY09 the profit after tax (PAT) of this company was around Rs 10 crore and FY08 the PAT was nearly Rs 4.5 crore. So the company with market cap of Rs 2,000 crore is having a PAT of nearly Rs 10 crore.

The promoter holding in this company is interesting with four promoters and 32 individuals together hold nearly 93.5% stake in the security. The free float in the company is very less and that is why most of the stocks tend to react because of cornered shares in the public. Also, the existing promoters of this company bought this company in 2003 at the price of only Rs 3 crore and now see the way the stock has moved up. The company is only engaged in the diary business.

Gee Kay Finance and Leasing Co: Another trader's delight?   

This company has a market cap of nearly Rs 4,000 crore, which is even higher than IndusInd bank or Dena Bank or most of the PSU banks. The stock has gained nearly 1,800% and again in this case we have seen there was a stock split in the month of December and the stock started with a price of nearly Rs 4 and went to as high as Rs 560 and now after the stock split is trading at around Rs 80.

The volumes have been good in this stock. In the last 4 years for this company there is no profit for this company. The PAT of 2009 there was a loss of Rs 29 lakh and 2008 it was a loss of nearly Rs 4 lakh.

Promoter holding will be very interesting because the promoter holding in this company is only 0.5% and there are 26 individuals who hold nearly 90.86% equity in this company. So again you have distorted equity, which is spread only in 26-27 people and the rest 7-8% is with the public.

These are the few cases where you have seen huge gains but this is all punters delight, no fundamentals which are attached to both the shares.

Other outperformers of 2009:

Company	Dec 31, '08	2009 Chg
Auro Pharma	Rs 168	429%
Mcleod Russel	Rs 49	427%
JSW Holdings	Rs 301	427%
Hexaware Tech	Rs 21	348%
Orbit Corp	Rs 62	339%
Uttam Galva	Rs 27	334%
Polaris Software	Rs 43	326%
HOEC	Rs 66	312%
Havells India	Rs 122	309%
Jindal Saw	Rs 44	307%
Deccan Chron	Rs 44	247%

 

 

 

 

 

 

 

 

 

 

 

 

Published on Mon, Dec 21, 2009 at 17:13   |  Updated at Mon, Dec 21, 2009 at 18:55  |  Source : CNBC-TV18

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