What drives real estate prices in India?

What drives real estate prices in India? The factors vary from city to city. In most countries, the construction of a noisy airport may be reason for residents to flee, but in India, the prospect of Mumbai's second airport coming up near Khargar is driving up prices.

According to Gulam Zia, national director—research and advisory services, Knight Frank, the Navi Mumbai area — from Vashi to Panvel — is likely to grow faster than other locations in Mumbai.

This is primarily due to the expectation that the new airport could come up here in the next 6-7 years in addition to the trans-harbour link. The entire look of Navi Mumbai could change in the coming few years, as Kharghar and Nerul record multi-fold growth.

Noida and Ghaziabad are coming up well due to the metro projects shaping up in the vicinity. There are plans to extend the metro network to Manesar as well. These are the areas that are emerging quite fast and good growth is expected here.

In Chennai, it's the OMR — which is short for Old Mahabalipuram Road — that is turning out to be the city's IT corridor. The IT industry is the economic growth driver in the region. Further up, the area around Mahindra World City is also seeing a lot of development. Industrial growth in this region is a huge contributing factor. Overall, a balanced mix of growth is being witnessed in this corridor.

Disruptions over Telangana aside, for Hyderabad, the major growth areas have always been Gachibowli, Madhapur, and Shamshabad. Again, IT is the key driver for growth. A huge amount of supply of real estate can be seen in Hyderabad. "Overall, the city is not as attractive for investment as other southern cities at the moment, or for that matter other cities in our top 10 list," says Mr Zia.

In Bangalore, locations which provide good enough growth from the IT angle include, Sarjapur and the Ring Road junction area. A peculiar aspect to note is that around the Electronic City and Whitefield area, good development is being seen, but these two localities are struggling for infrastructure.

However, these two areas will see good growth in the next two years. The other localities to watch out for include the area around the road connecting the new airport and Hebal, as they are likely to grow considerably in the coming years.

In the East, Kolkata is the only city that figures in the top 10 list of cities that are expected to see substantial growth. "Kolkata is also banking on the IT story. Several projects are expected to come up in Rajarhat and Salt Lake. Other emerging locations include Mahesh Tala and Tara Tala. Many new townships are being constructed in Tara Tala, gradually transforming it from an industrial zone to a residential township. This will be a promising area in the future," informs Mr Zia.

 

Source:http://economictimes.indiatimes.com/markets/real-estate/realty-trends/What-drives-real-estate-prices-in-India/articleshow/5389695.cms

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What your portfolio should consist of in 2010

The year draws to a close ending with it one of the most phenomenal stock market rallies ever seen. In March this year, the Bombay Stock Exchange's benchmark Sensex levelled out at close to 8,000 levels and today it hovers above the 17,000 mark. Market sentiment eagerly eyes the Sensex breaching its all-time high of 21,000 level going into the next year.

"2010 will be far more interesting year for investors because they will have more confidence in the equity markets," says Amit Dalal of Amit Nalin Securities. For the next year, Dalal marks out the budget in February and how the government shows it intends to handle its burgeoning fiscal deficit as a key risk for markets. Among other things, he said high inflation and a repeat dry spell a la 2009 could play spoilsport. "But overall, I see more positives than negatives and the call is the Nifty rises 10% in the year from 5,200 currently to 5,700 levels," he said. The Nifty's all-time high is close to 6,400 that it reached in January 2008, post which a sell-off of unprecedented magnitude saw it retrace to 2,500 levels in a year.

Jagdish Malkani says the theme of the markets, of late, has been midcap and smallcap stocks as largecaps that have a had a big rally post March have been cooling off. "It's the classical bull market," he says, "There was talk of the Delhi-Mubai rail corridor and rail stocks went on a year. There is sector rotation going on — rail, cement, steel."

Malkani, however, warns investors who buy a lot of midcaps to be nimble-footed as in any sell-off, the worst hit would be the smaller stocks.

Themes for 2010

"For 2010, I would go for deep value, some of these holding company types, which are trading at a fraction of what they are intrinsically worth," Malkani says, "Or I would actually look into midcap arena for possibly the couple of media stocks that are appealing, in the IT space and even in pharmaceuticals."

Dalal of Amit Nalin says he would lift some money off the table from stocks like those with rural consumption theme that have done well this year.

"We have seen almost like a bubble in the economy in demand for products coming from the rural side. A lot of it is because of the government spend rather than an improved productivity coming from the rural economy on its own. So I would be very wary of owning stocks in that particular sphere," he said. "Technology has had a stupendous run and we have started discounting things, which the markets still do not understand in terms of what the changes in prospects are. A lot of it is speculation in terms of what the change can be and there the PE ratios have expanded a lot. So I would reduce weightages in that sector too."

Source : Moneycontrol.com

 

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Expect moderate returns in 2010

Consequent to the sharp run up in markets in 2009, investors will have to be
careful in picking stocks while lowering their return expectations

After the astonishing performance in 2009, which has helped Indian stock
markets emerge among the best performing markets globally with year-to-date
returns of almost 80 per cent, the year 2010 could prove to be a
disappointment.

The BSE Sensex has more than doubled since its lows of sub-8,000 levels in
March 2009 is no secret. However, the Sensex now trades at 16 times its
estimated 12-month forward earnings wherein most of the positives, primarily on
account of improving economic fundamentals and corporate earnings, seem to be
priced in. Notably, since the up move has been due to the expansion in
price-earnings (PE ratio) multiples, it is the turn of corporate earnings to
catch up and make a case for the valuations to sustain at higher levels.

It is largely due to these reasons, experts believe that the markets will
remain in a narrow range and suggest that the Sensex may provide returns of
about 10-15 per cent by the end of December 2010. Most brokerages have set a
12-month target of 19,000-21,000 for the Sensex. Their modest expectations are
also due to some concerns that will have to be overcome, which in a way
indicates that investors need to be cautious as the risk-reward ratio is not as
favourable as it was in 2009.

Cautious mood...
The tightening of liquidity and hike in
interest rate, which is pretty much on the cards, could dampen sentiments of the
markets, believe experts.

The other concern pertains to the strength of global economic recovery
besides, a roadmap regarding withdrawal of stimulus packages (by different
countries) and its likely impact. Thirdly, although global liquidity is high,
with many Indian companies lining up to raise funds, it will test the ability of
the markets to absorb the increase in supply of paper.

Since global markets have seen the dollar weaken, leading to demand for real
assets like commodities, any sharp rebound in the dollar against major
currencies could reverse some of the dollar carry-trade (investors take cheap
dollar loans with an aim to make better returns by investing in other asset
classes) and pose additional concern. Lastly, concerns pertaining to sovereign
risks like the episodes of Dubai and Greece, could trigger a sell off in
emerging equity markets, and impact the ongoing recovery....but, still
positive

The markets are positively hoping that India’s government would unleash major
reforms, including implementation of Goods and Services Tax (GST) and Direct Tax
Code (DTC), which will provide a stepping stone for the next leg of economic
growth. Government’s fiscal prudence by speeding up the disinvestment process
(selling small stakes in public sector enterprises) would also be closely
watched. However, at this point in time, since the concerns are slightly more
than the positives and a lot of the good news is already priced in, the return
expectations from the broader market are moderate. Experts, thus, suggest that
in order to get superior returns in 2010, the best investment strategy would be
to adopt a bottom-up approach namely, picking individual companies, particularly
in the mid cap space.

The reason for being selective is primarily due to the fact that many
companies are still surrounded by concerns (like excessive debt, low demand,
etc) and are yet to show clear signs of a revival in their earnings.

Below are ten companies, which should do well and deliver above-market
returns in 2010. Most of these lead in their businesses, are well-managed and
have strong entry barriers. More importantly, their future prospects look good.
Although a few have high-debt on their books, they are experiencing a revival in
demand for their products and services and are taking steps to de-leverage their
balance-sheets. This along with relatively cheaper valuations will help them
deliver better performance as well as returns.

To know more on individual companies, read on.

HDFC
Higher liquidity and low interest rates have lowered
HDFC’s cost of borrowings. This could cushion it’s margins, in spite of the
company’s low home loan rate offerings starting at 8.25 per cent. The company is
observing good demand in the Western and Southern regions. Although interest
rates are expected to inch up in 2010, demand for home loans is likely to remain
healthy on the back of an improving economy. HDFC’s overall loan book is
expected to increase by 20-23 per cent in 2010-11. It’s recent acquisition of
Credila Financial Services gives it an entry into the education loan segment,
which is seen growing at 25-30 per cent annually. Further, value unlocking would
happen if its 10-year old subsidiary, HDFC Standard Life, comes out with an IPO.
HDFC is trading at 3.5 times its 2010-11 adjusted book-value and can deliver
over 20 per cent returns.
 

TOP PICKS FOR 2010
in Rs crores	Net sales		Net profit		Market Cap	PE  (x)	Price (Rs)	PE (x)
	Sept 09	% chg	Sept 09	% chg				FY10E	FY11E
HDFC	3,872.0	16.7	2,509.0	14.7	75,798.0	30.2	2,652.0	4.4	4.0
Indian Hotels	1,338.0	-26.6	117.0	-70.0	6,975.0	46.4	96.0	35.1	21.0
Jain Irrigation	2,339.0	20.4	153.0	13.3	6,267.0	37.5	830.0	24.4	16.0
Larsen & Toubro	34,313.0	16.6	2,978.0	26.9	100,977.0	21.5	1,682.0	24.8	21.0
Pantaloon Retail	6,608.0	20.7	148.0	11.9	7,654.0	51.7	371.0	29.7	21.0
Reliance Infra	9,966.0	28.1	1,221.0	5.7	24,910.0	20.4	1,100.0	16.1	16.7
SBI *	58,732.0	26.4	13,022.0	38.0	140,823.0	11.1	2,218.0	2.6	2.1
Suzlon Energy *	24,988.0	34.3	-236.0	-	13,730.0	-	88.0	80.2	17.6
Thermax	2,902.0	-10.5	266.0	-3.0	7,075.0	26.1	94.0	26.7	20.5
United Phosp.	5,129.0	17.4	504.0	29.7	7,286.0	14.8	166.0	13.6	10.2
PE & Financial figures are for 12 months ended September 2009 % chg is for the corresponding trailing period, For banks: Net sales=Total income and P/E is P/Adj BV * Consolidated E: Estimates                                                                                                                                                      Source: CapitaLine Plus

Indian Hotels
The rise in occupancies in the second and
third quarters of 2009-10 indicates a change of fortunes. Compared to 52 per
cent occupancy in June 2009 quarter, the same stood at 60 per cent in September
quarter. The third quarter has started well; analysts expect occupancies to
average around 80 per cent in the second half of 2009-10. This is on the back of
an increase in tourism and corporate travels. Apart from the domestic business,
the long awaited turnaround in profitability of international properties would
also boost Indian Hotels’ earnings. Room rates, too, have improved at select
properties, and if the trend continues it would augur well for the
company.

Jain Irrigation
Jain Irrigation, a leading
company in micro irrigation systems (MIS), food processing and pipes, is a good
play on agriculture growth and rising farm incomes. Its MIS division is expected
to grow by 30-35 per cent over the next two years as penetration levels increase
due to the efforts by various state governments. The company is exploring new
markets and is further expanding its equipment range to cover crops such as
cotton, groundnut, potato and vegetables.
 

SOME MORE PICKS
in Rs crores	Market cap	CMP (Rs)	Trailing PE (x)
Bartronics India	447.0	143.4	4.8
Crompton Greaves	15,432.0	421.0	23.0
IRB Infra	8,048.0	242.2	34.6
IVRCL Infra	4,789.0	358.7	21.5
K E C International	2,854.0	578.5	35.5
Lupin	13,020.0	1,465.0	22.7
M & M	29,713.0	1,061.9	21.7
Opto Circuits	4,196.0	229.4	17.7
Praj Inds.	1,902.0	103.0	15.9
Sun Pharma	32,386.0	1,563.7	22.8

Benefits will also come from the expected improvement in profitability of its
overseas subsidiaries. Though its pipes and food processing (over 55 per cent of
total revenue) businesses are seen growing at a relatively slower pace, they
should also do well on the back of improving demand and lower input costs.

Larsen & Toubro
The revival in industrial capex,
particularly in the power sector, along with higher spending on infrastructure
mean better prospects for India’s largest engineering and construction company,
L&T. Notably, the gains from its diversification into growing sectors like
power equipment, shipbuilding and forging along with huge opportunities in
nuclear power and defence equipment, will start paying off in the form of higher
order inflows in the coming years. L&T is also foraying into the power
generation segment with an aim to have 7,000 mw capacity over the next five
years. Meanwhile, it’s existing order book of Rs 81,623 crore (2.3 times 2008-09
revenues), provides good visibility, and should drive revenue growth in the
coming years. In terms of profits, analysts expect it to grow at about 20 per
cent over the next two years.

Pantaloon Retail
An improving economic and employment
outlook as well as encouraging demographics suggest better days ahead for the
organised retail players. For Pantaloon, it expects revenue growth to average at
25 per cent over the next two years aided by its plans to nearly double its
total retail space to 25 million square feet by 2013-14. Its focus on cost
efficiencies should ensure that profits grow faster. The company plans to raise
Rs 1,000-1,200 crore through various instruments to help fund its expansion
plans and repay debt. Lastly, its move to reorganise its businesses into
separate entities should help unlock value in the long run.

Reliance Infrastructure
Reliance Infra could be a good
investment given its low valuations and growth in the construction and power
businesses. The company’s EPC related order back log is robust at Rs 19,600
crore, and is expected to grow given that work for about 28,000 mw of capacity
of Reliance Power is yet to be awarded. Further, its increasing focus and strong
portfolio of 730 km of road projects and, scheduled completion of the Delhi and
Mumbai metro projects over the next nine months, augur well. Also, increased
contribution from its power business and improving margins due to lower
commodity prices should result in higher profitability. Analysts value the stock
at about Rs 1,350 per share based on its investment in various companies and
cash in the books.

SBI
During 2008-09, SBI increased its loan book faster
than its private peers. Analysts expect the trend to continue with an upward
bias on the margins also. Nevertheless, RBI’s mandate to increase its
provisioning coverage to around 70 per cent could put pressure on its
profitability in the short-term. However, favourable policy initiatives like
scrapping of SBI Act, consolidation of associate banks with SBI, and likely
listing of its life insurance subsidiary could act as future triggers. Although
the bank may have to raise funds in 12-18 months, the same would provide fuel
for funding future growth in its businesses. Major concerns over restructured
assets impacting financials would taper off, slowly but surely, as the economic
growth momentum picks up further, leading to better stock valuation.

Suzlon Energy
Suzlon could be a good play given the
increasing focus on renewable energy globally. Demand for wind power equipment
has been lower in the recent past, but should improve in two of Suzlon’s largest
markets (US and Europe) helped by customers getting easier access to funds.
Suzlon is also taking steps to bring down its leverage. Recently, Suzlon’s
promoters invested money in the company, while the company raised funds by
selling its stake in its Netherland-based subsidiary, Hansen, which was used to
pay some of its debt. Meanwhile, Suzlon is in the process of restructuring its
remaining debt, which lower the pressure on its cash flow and earnings. Suzlon’s
stock is currently trading at cheaper valuations as compared to its peers due to
concerns over debt and lower demand. But, as things improve, expect it to get
rerated, which indicates potential for strong upside.

Thermax
Thermax, a leading player in the environment and
energy equipment business, could benefit from the growing environment concerns
globally and an expected revival in India’s industrial capex. The company is
already making efforts to gain orders for its waste treatment business for
domestic municipal corporations. In power, while Thermax is leader in small and
medium sized industrial boilers, it is now eyeing large-size projects on the
back of an increase in its boiler manufacturing capacity which now stands at
about 1500-2000 mw. The company also forayed into sub-critical power equipment
segment through a technical tie-up, which should boost growth rates going ahead.
Meanwhile, its strong order book of Rs 5,056 crore provides good visibility,
which along with the benefits of lower commodity prices will mean higher profit
margins.

United Phosphorus
United Phosphorus (UPL), which operates
in two main segments (crop protection and seeds), is another stock to play on
the agriculture growth story. It generates about 80 per cent of its revenues
from international markets. As UPL integrates its several overseas subsidiaries
and increases focus on the US and European markets for the generics opportunity
in crop protection products, expect growth rates to perk up. Additionally,
improved outlook for the domestic agriculture market should benefit Advanta
India, a listed subsidiary of UPL which has a strong position in the domestic
seeds market. Overall, its robust portfolio, strong distribution network and
established presence in growing markets should help sustain healthy growth. The
company’s net profits are expected to grow at about 25 per cent annually over
the next two years.

A
WATCH-LIST FOR 2010



Stocks of cyclical sectors such as commodities, including metals, have rebounded
sharply on the back of higher global prices. While the demand is yet to pick up
in a meaningful manner, the price rise is largely attributed to investors
seeking real assets on account of dollar’s weakness, all of which indicates that
there is little room for appreciation in 2010.



There is high certainty about interest rates moving up in 2010, which may not
sound positive for sectors like automobile and real estate. Stocks in the two
sectors have already given strong returns in 2009, and hence, are likely to
underperform in 2010.



Despite expectation of higher interest rates, the credit growth which has
slipped to about 10 per cent recently is expected to bounce back to 16-18 per
cent going ahead. This would mean good news for the banking sector. Higher
economic growth and improving industrial numbers would translate into increased
spending by consumers and industries in 2010. Thus, the capital goods or
industrial sectors should do well particularly.



Higher agri-commodity prices, rising farm incomes and focus on increasing agri
output is good news for agri-based companies, particularly sugar, given the
demand-supply mismatch. Hence, they should do well.



Selectively picking companies which felt the hardest impact on their financial
performance due to the demand slowdown and global crisis might lead to high
returns. Such companies could get re-rated as economic conditions normalise
resulting in improved earnings. Return of risk appetite will also help companies
raise funds through QIP, etc and de-leverage their balance-sheets.

 

Source:


http://www.business-standard.com/india/news/expect-moderate-returns-in/380865/

 

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2009: A makeover year for MFs

2009 has been a year where the mutual fund industry has witnessed a transformational shift in the way business is done. CNBC-TV18's Mrinalini Krishna and Priyal Guliani report on how the Securities and Exchange Board of India (SEBI) has enforced game changing moves in mutual funds.

No entry load - 2009 highlight

Market regulator SEBI cleaned up of the mutual fund industry, bringing in a flurry of reforms and ushering in transparency. The most significant one was the abolition of entry fee on mutual fund schemes.

On June 18, 2009, CB Bhave, Chairman, SEBI, had said, "There will be no entry load on any mutual fund schemes. The investor will decide the commission that he is to pay to the distributor directly. The board also decided that if the distributor is selling different schemes then he must disclose to the investor as to what commission he is getting for different schemes."

So far, every time an investor bought a mutual fund, a fee of 2.25% was charged upfront by asset management companies (AMCs) and mutual fund distributors. But now, fund houses and distributors had to learn to live by the new rules, where the customers could choose to pay an advisory fee.

Despite this shift, fund houses saw their average assets under management (AUM) rise. They crossed Rs 6 lakh crore in May, Rs 7 lakh crore in August and Rs 8 lakh crore in December.

But equity funds saw outflows to the tune of over Rs 5000 crore since August, largely due to profit booking. New fund offers (NFOs), the key sales drivers for the industry, failed to take off with nine new funds managing to garner a little over Rs 1000 crore.

Regulator's tough stance

The regulator, meanwhile, came down on fixed maturity plans (FMPs) as well. It directed that no indicative yields were to be announced for any debt mutual fund and liquid funds were allowed to invest into money market instruments of upto 91 day tenure only. That's not all the regulator demanded that the trustees of asset management companies played a more engaging role.

In October 2009, KN Vaidyanathan, Executive Director of SEBI, had said, "Our sense is to re-emphasise the sense of responsibility and accountability that the trustees have. They are the investor facing entities, they have the fiduciary responsibility in a sense they are the first level regulators."

Year-end cheer for MFs

By the end of the year, brokers had something to cheer about. They could now buy and sell mutual funds through exchanges, pretty much like stocks.

The mutual fund industry has changed over the last year, possibly beyond recognition. The new regulations have broken the shackles of traditional practices and have made mutual funds one of the most affordable and accessible financial instrument for Indian investor.

Source : CNBC-TV18

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The most interesting events and trends in the year 2009

Their asset quality is among the best in the industry. Plus they have the added advantage of vast distribution network in the form of branches in rural and semi-urban areas. If the current rally continues, the stocks of these tops PSU Banks will continue to outperform the benchmark indices as they are expected to perform better than their peers. While a few private sector banks like HDFC Bank, Yes Bank, IndusInd Bank and Dhanalakshmi Bank also made a new all time high, their valuations have already factored in the very high growth rates and the chances of further stock appreciation are limited.

The midas touch

Gold prices continued their march towards a new all time high of $1,210 per troy ounce in 2009 due to a weak US dollar and rising investors' interest. The last leg of the rally past $1,100 was, however, initiated by the news of India's central bank buying 200 tonnes of gold in the last quarter. India joined countries like Russia, the Philippines and China that have been consistently adding gold to their official reserves since late 2008. All this buying led to an increase in the gold reserves of world central banks first time in last nine years.

Defensive stocks make moolah

Defensive sectors like FMCG and Pharma typically under-perform the broader market indices during a rally. However, this year, most FMCG and Pharma companies have outperformed the Sensex.

Pointers To The Future

Except the big FMCG daddies like Hindustan Unilever and ITC, most of the leading FMCG companies including Dabur, Nestle India, Marico, Godrej Consumer Products, Emami and smaller players like Procter & Gamble Hygiene & Healthcare have outperformed the Sensex during the year.

It is the same case with most pharma stocks like Dr Reddys Labs, Ranbaxy, Lupin, Cadila Healthcare and Ipca Labs among others that beat the broader market indices this year. Most of these companies from both these sectors have registered strong growth in their revenues and earnings over the last couple of quarters and consequently the investors have cherished their stocks. However, these sectors are unlikely to register a repeat out-performance going ahead as most companies have reached their peak valuations.

It makes a comeback

At the beginning of 2009 only a brave heart could have bet on the IT sector. With ever-fluctuating rupee that led to forex losses and tumbling tech demand from the western economies, the sector's fate was more or less sealed. Yet, 2009 was sort of the year of resurrection for the IT stocks. After betraying investors for two consecutive years, top IT companies offered marketbeating returns on bourses in 2009. The stock price of TCS, the country's largest IT company and HCL Tech, the fourth biggest, nearly trebled. Infosys and Wipro, the second and third in ranking, respectively, rose two-folds.

A recovery in demand from global financial sector and expanding domestic IT space were the major reasons for the outstanding performance. Going ahead, the stocks are less likely to see a major run-up since current valuations reflect most of the positive triggers in near future.

The call drops— telecom loses lustre

There are very few leading sectoral indices, at the end of 2009, which have moved southwards, at a time when the broader market indices have moved northwards. And telecom sector is one such beleaguered sector. After consistently outperforming the Sensex for last three years, the one-time darling of investors has grossly under-performed by a whopping 83%

 

Considering this past performance, the investors, at the beginning of the year, wouldn't have expected the sector to log such a poor show. The intense competition among companies and consequently falling tariffs has led to the de-rating of the sector. Going forward, the things can only improve given the incredibly low valuations in the sector right now.

Food for thought

On the backdrop of high commodity prices for major part of 2008, the inflation was expected to be moderate in 2009. Reserve Bank of India had anticipated an inflation of 5% for FY10 while presenting its annual statement in April 09. However, deficient monsoon rains and untimely showers in October and November badly hit kharif crops this year.

There is an estimated 17% drop in kharif food grains this year. All this resulted into escalating food prices. Food inflation has already touched a decade-high level of 20% during the week ended Dec 6. The effect of high inflation is clearly visible in inflation based on CPI (consumer price index) as it is hovering around 15-18% for different categories. Such high consumer inflation is likely to trickle down in the system and overall inflation will gear up. This is likely to push the WPI (wholesale price index) based inflation to a level of 6.5% by end of this year.

Mutual funds sans entry loads

SEBI's complete abolition of entry load from investments in mutual fund schemes has led to a hue and cry among the mutual fund distributors across the country. Many distributors have stopped selling MF schemes altogether while others are recommending their investors insurance plans like ULIPs in lieu of MFs in a bid to earn their livelihood.

In a country where the financial literacy is still quite low, it is difficult to make an investor shell out some extra bucks to pay commission to their distributors, which is now mandated by the regulator. The impact of SEBI ruling is also being felt at the fund houses who are now finding it difficult to attract fresh inflows into their new as well as existing schemes. While the financially literate investor will approve the ruling, for others, it may take some time to overcome the detestation of paying out some commission for want of some advice.

Auto sector vrooms ahead

Every Bollywood script has a hero and story revolves around him and his exploits. The plot was similar in case of the global financial crisis and its Indian episode. Here automobile manufacturers took the centre-stage of the unfolding economic crisis. Auto sales tumbled like nine pins as the financial crisis deepened with the fall of Lehman Brothers, September last year. In segment such as high-end passenger cars and commercial vehicles, off take of new vehicle fell by as much as 50-60%.

This sent a shock wave through the industry. The recovery has however been equally sharp and shocking. In matter of four quarters, the industry moved from an existential crisis to all time high sales, revenues and profitability. Just as automakers were harbingers of the crisis, they become the poster boys of the stock market rally. In the last nine months, most of the auto stocks have trebled or quadrupled in value and have led this bull-run. But does this mean they will, consolidate next year or underperform the broader market? Only time will tell.

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Loan rejected? no sweat

Housing finance companies step in to provide loan to customers turned away by banks.

Almost all banks refused a housing loan to a mid-management executive in Mumbai, who earns an annual salary of Rs 28 lakh. The reason? He had bought a sample flat that the developer had furnished and charged him extra for the amenities. A non-banking finance company (NBFC) came to his rescue.

While the market value of the flat is Rs 1.21 crore, it cost the buyer Rs 1.55 crore, including amenities, stamp duty and registration charge. The borrower's requirement was Rs 1.15 crore. Banks didn't lend as the deal was way above the market value of the house. The NBFC not only provided the required amount, but also disbursed it within two days.

This is not an instance of reckless lending, but a calculated call by the lender. Some banks and NBFCs have carved a niche in the lending business. They cater to the class of borrowers generally not serviced by banks. They go beyond the income statement and tax returns to offer what is called as deviations to the standard banking practices. Most private and public sector banks prefer to do business with salaried people and follow the guidelines set by their managements.

One such lender among the NBFCs is Deutsche Postbank, which walks the extra mile to conduct due diligence. Describing its method of functioning, Anoop Pabby, joint managing director, Deutsche Postbank Home Finance, said, "The strength of our credit evaluation process is quick screening of financials, personal meeting with the customer by our credit managers, a visit to his business premises to verify the nature and depth of his business, taking third-party feedbacks, corroboration of the facts from information available in the public domain, banking habits, existing loan repayments, facilities provided by other banks, audit reports and so on."

Some of these lenders even employ chartered accountants as part of their credit valuation team to take a call on the creditworthiness of a customer.

Following are some of the common areas where a large bank may not fit the borrower's criteria, but these lenders would give a loan if they feel the customer can repay.

100 per cent housing loan: Banks typically lend 75-85 per cent of the agreement value, which includes stamp duty, registration and car park. But if the developer asks for cash, the agreement value falls and affects the quantum of loan one can take.

Some lenders, especially privately-owned NBFCs do realise the prevalence of cash in such deals. They do their own valuation of the property before sanctioning a loan. So, if the agreement value is much below the real price of the house, these lenders provide even 100 per cent finance. The amount of loan in most cases is increased by dividing the loan in two parts – a regular housing loan and another one for amenities to provide 100 per cent financing.

Track record: It is a standard practice for all lenders to check a customer's record in the credit information bureau. If the borrower is shown as a defaulter, banks don't lend unless the customer settles the issue with the company that has reported the person as a defaulter. Customers face rejection even if the default is on account of a dispute.

NBFCs such as Deutsche Post lend to customers who can justify the track record and provide supporting documents.

Self-employed: This segment of customers finds it most difficult to get a bank loan. While professionals have difficulties to produce receipts for every transaction to prove their actual income, business owners tend to split earnings among family members for tax purpose. This acts as a hurdle when a self-employed person requires a big-ticket loan.

Banks such as Kotak Mahindra Bank have specialised in lending to this category of customers. The bank goes through various documents to assess the actual income. This includes studying receipts and transactions on bank statements.

In fact, housing finance company HDFC has a product that caters to professionals such as doctors and chartered accountants. "If the customer is a young professional, there are structured repayment options available that provide flexibility and, in turn, a higher loan amount," said the spokesperson of the bank.

One such option from HDFC is a product called Step-up Repayment Facility. This is linked to the customer's expected income growth. Under this facility, the customer will be eligible for a higher loan amount as compared to the regular home loan product and as he would pay lower equated monthly installment (EMI) in initial years, which will rise over the years as the earning capacity improves.

Loan against property: While lending against a property, financial institutions usually provide 50 per cent of the value of the asset. A large bank would first assess the property and then look at the customer's income tax filings. If the EMI is more than the income declared in tax filings, lenders would usually reject the application.

In such cases, a borrower can approach the housing finance company, especially those having a large portfolio of self-employed persons and businessmen. These companies provide 30-40 per cent of loan against the property. They also lend even if a customer does not have income-tax returns to justify his income, provided the borrower can establish that he can pay the EMI.

Source: http://www.smartinvestor.in/pf/pfNewsDetail.php?pg=news&newsid=15717&pgtitle=newsdet

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