Paying EMI's proving thorn in one's side

Even though the total household debt in India from the formal sector amounts to just over Rs.5.58 lakh crore, (might seem a big amount to say ONLY, but that's about hardly 10% of the GDP), but the figures have upsurged during the current economic slowdown making the middle class in metros susceptible to a financial deadlock. Recent studies have revealed that middle-class households across metros like Delhi, Chennai, Bangalore and Mumbai cough up spending approx. one-fourth of their hard earned income on paying EMIs. And the major-league expenditure include paying up for housing, auto, durables and personal loans. Nearly two-third of these households have resorted to personal loans in the last two years itself and over a third of people in these metros have invested in stocks.

As per a recent consumer survey conducted by the prominent New Delhi based market analysis firm, Indicus analytics, salaried households in Kolkata pay up to 27% of their monthly income on EMIs. Talking about Mumbai, the stats reveal that the non-salaried class carry the maximum personal loan burden amounting to Rs. 1.45 lakh. Gold, provident fund as well as fixed deposits have remained a hot destination for investors, particularly the south Indians, with about one in every two households investing in yellow metal.

Coming to the point, it is not a rare sight to see hoardings of EMIs as one travels, hear and see companies offering the 'best' schemes and trying to outdo each other to grab the market. While on an outset this might seem very lucrative for the consumer who is being offered different options to chose from, consumers must realise that the same is only meant for those who are in need of something but can't afford to pay for the same in a lump-sum amount. But the current trend is obviously something else. Not to offend anybody's personal sentiments, those who were earlier in need (and could afford) only a two wheeler, can today easily opt for a small car courtesy EMIs. The result, they end up paying a substantial amount of their salary on something they don't really need. Considering the current market scenario when many banks across the country are being rumoured to be in financial crisis (let's leave the talk of politicians for a moment), would it really be a smart decision to go for an installment scheme until and unless you really need it? I think otherwise.

How to get yourself going in a down stock market?

The current market scenario is making investors think really hard over what to opt for and what to avoid. Even though inflation along with crude oil prices have also taken a hit, the situation is not positive by any means, with the sensex now looking towards returning to four figures. Yesterady, the sensex crashed yet again as even more top-line stocks fell to their 52 weeks low and closed at the same levels without any sign of recovery. Investors still have to line up and wait for their turn till the market becomes stable. But the question arises, what are the investors supposed to do in this situation?

It's high time when an investor has to take a look at his portfolio and get them reshuffled so as to give more preferences to companies enjoying leadership position in several segments of the industry. Investors need to take into account that their portfolios need to be switched to large cap in case there is higher exposure to mid cap and small cap. This is because large caps, which are the asset class and are hence slated to move up first when the markets revive, are clearly the best bet, and more so in a down market which makes them all the more affordable. Moreover, it is better to enter equity particularly through diversified equity funds in case the exposure to equities is low.

The next precaution is to never put one's eggs in the same basket; it is always better to invest in diversified stocks. This call of action safeguards the interest of the market players due to the presence of vulnerability of any particular stock becoming a prey to the whims and perpetually changing market scenario.

All in all, investors are advised to keep themselves invested and use the current downturn to add more stocks to their inventory in a systematic and disciplined way. Not only this, they should also look forward to following a proper asset allocation methodology to curtail risk to a certain limit, in case they are interested in relatively short term gains.

Seeking Desperate Refuge!

The other day I was reading Ashani Sanket, a novel by Bibhutibhushan Banerjee, which dealt with the atrocities of undivided Bengal during the time of famine. I was moved to read that despite plentiful rains and good harvest, rice, the staple food there, had become unaffordable by thousands of people. The price rise made the situation even worse.

What all is happening in the financial world in the emerging economies is similar to the plot of the story. Not only has the financial sector in the west been trampled underfoot with economy crashes all over, it has had its fair share of impact on the Asian markets as well, with India also getting a fair amount of shocks, and the most surprising fact is the ferocity and swiftness of the impact.

A few years back, Fed Bank in the United States was following a monetary policy where the govt was offering plenty of credit at affordable rates. As it happened, the property prices rose, even those who could not afford to buy got enticed by the predatory lending practices and bought properties. However, it so happened that with the rising interest rates, declining property prices and a slowing economy, people resorted to defaults while repaying back.

It was mainly the institutions that had significant investments in mortgage backed securities created on a pool of assets that were hurt most. Moreover, institutions that had sold credit derivatives started incurring huge losses as credit worthiness of the real estate sector went into a turmoil. Lastly, the very fact that institutions had financed their positions through high leverage in the form of short term borrowing added to the already existing financial chaos. This move forced them to follow a policy of refinancing their positions frequently. However, as asset prices fell, these institutions found it hard to do the same. Eventually, the cost of funding start going up but a point was reached when it became impossible to make the funds available.

This contagion which began in United States is gradually making a headway towards Europe and is threatening to eat up the rest of the world. The question is- Where to take refuge? Who is going to help? And even as governments from all over the world try their level best to restore order in their respective financial industries, what is actually needed is some sort of a new world order that can at least minimise, if not isolate, the adverse impact of one country on the global economy. Impossible? Probably. But all the more essential.

US Financial Meltdown Proves Fatal for Indian IT Industry

The US financial crisis has made headlines all over the world and this meltdown will pose a long lasting impact on the $50 billion Indian IT industry. Companies that bet heavily on banking and financial sector will find no safe haven whatsoever while others will look towards taking the shelter of non-banking sectors to keep their business afloat. The Indian IT sector is facing tough times ahead as it is evident from Nasscom's downward revision of growth forecast. It is predicted that while the big players in the IT industry will be able to survive the shock, the small ones will not be able to sail through.

Analysts are expecting that this global meltdown will continue throughout the fiscal year 2009-10. Till then, the world will have to witness to huge salary cuts, single digit hikes, unoptimized employee lay offs and insipid sequential growth. As per analysts, the second quarter will be the weakest one in many years. It is expected that the rupee will not show any further depreciation, thus nullifying every possibility of any future currency gains. None of the major business entrepreneurs will try to place its foot in this otherwise crestfallen market.

The most crucial factor which is posing a threat to IT majors is the fall in pound and Euro against the dollar which is the reverberation of panic selling of investments by foreign institutional investors due to their lost confidence in global markets. This has in turn resulted in demand for the dollar against the pound and the Euro. The backwash effect is a sharp fall in the value of those currencies leading to a decline in the operating profit margins of IT companies exposed to pound or Euro revenue. The key players in the industry that includes Tech Mahindra, Infosys and Wipro earn a major chunk of their revenues from British and European clients. And the fall in currency values of these countries will adversely affect the business of IT giants. Further, the $700 billion bailout by the US government is backed by no assets, & hence will certainly lead to a long-term global inflationary trend.

In the current scenario, the best practice which the IT sector must employ to survive the crisis is to resort to other destinations to make their revenue portfolios risk free. With regards to this, investment surplus countries like Russia and West Asia are preferred destinations to look forward to.

Where to Invest and where not to?

The current market trend is giving shudders to investors all across the country, as they are finding it tough to pick on the sectors that offer the safest bet. With the volatility in the market still in continuance, investors are cutting short of their expectations. Not only this, with the slump in the market, even the institutional investors are seen running after profits in short intervals.

The recent records show that not many sectors promised to pay returns to the investors as were expected. Most sectors are reeling under severe pressure to sell their shares on a rotational basis. In this scenario, it is advisable for the investors to pool their money with caution, taking into account a broad overview of sectoral perspective in their mind. But this strategy will prove beneficial only when the investor is considering to invest for a horizon of at least 2-3 years. It is not sure that the selected sectors will provide only aggressive returns as there is every possibility of some sectors proving defensive in nature. But a mix and match of these sectors will be in the interest of the investors as it would help them in beating index returns which are likely to be flat in the next 6-9 months.

One of the adversely affected sector in the recent global scenario is technology, but the rally of the dollar and a huge support proposed by the US government for stabilizing the financial crisis has in turn shortened the recovery process for this sector which was reeling under a severe slump. Now, most players in this sector are looking forward towards rationalization of expenses and manpower strength as this will in turn prove beneficial for the tech companies to regain their lost status in the market. Stocks which were earlier being priced in negative terms are now showing an upward movement in the range of 10-15 percent which is good for traders.

Another sector close to heels is the banking sector as it is in news for offering long term picks to the investors. A combination of well managed private banks and fundamentally good PSU bank stocks is what the investors must opt for. There is every hope that the domestic market will improve in the next one year offering the investors several opportunities to buy the stocks at regular intervals, provided the investors possess liquidity to make use of these forthcoming opportunities.