The central bank’s directive to calculate interest rate on savings deposits on a daily basis is likely to dent a big hole in bankers’ books
One of the leading public sector banks has told Moneylife that under the new system, its interest outgo would increase by Rs250 crore in the coming year. Considering that one bank alone will cough up so much funds, we estimate that the top seven banks (by aggregate deposits) are likely to pay out in excess of Rs2,500 crore-Rs3,000 crore as additional interest into the accounts of savings account holders next year.
From 1 April 2010, savings account holders will benefit from the new rules on calculation of interest rates on their deposits. However, banks will end up feeling the pinch under the new system. With banks shifting to a completely new method for calculating the interest rates, it is estimated that the cost of funds for them will go up by at least 30%-40%.
No wonder then, that some banks are apparently lobbying hard to effect a reduction in the rate of interest on such deposits from the current 3.5% to 2.5%. However, sources tell us that it is unlikely that the RBI will take such a step.
Some banks had even suggested that interest on the savings account may be calculated on the minimum balance in the account from the first to the last day of each month.
When the RBI had referred the proposal to implement the new system to the Indian Banks’ Association (IBA), it had met with stiff opposition from many bankers. Then, they were of the view that it would be feasible only when the computerisation of banks is completed. However, in its quarterly monetary policy review last year, RBI directed the banks to implement the new method of calculation from 1 April 2010.
At present, the interest rate on savings accounts is calculated on the minimum balance held from the 10th day to the last day of each month. Savings deposits currently yield an interest rate of 3.5% which is credited to the account on a half-yearly basis.
The market trend is down; it will probably move sideways with a downward bias
Markets were volatile throughout the day. They started off on a strong note, but soon pared gains and took a dive. Trading was range-bound for the rest of the day. The trend was downwards.
The BSE Sensex ended the day 62 points down (0.35%) at 17,527 points; the Nifty ended 13 points down (0.25%) at 5,249.
Most Asian stocks declined on Wednesday amid concerns that a rally that had taken the MSCI Asia Pacific Index to a 10-week high yesterday had overvalued earnings prospects. Key benchmark indices in China, Taiwan, Indonesia, Hong Kong, Japan, South Korea and Singapore were down by 0.44% to 1.11%. China’s central bank said that it would try to keep the growth momentum steady and prevent any financial risk. Stating that the current economic condition was “extremely complicated”, the bank said that it would maintain ample banking liquidity.
Japan’s export orders were at a six-year high, which is a sign of recovery in the manufacturing market in China. The index for new export orders, a leading indicator of Japanese exports, rose to 55.7 from 55.2 in the previous month, hitting the highest level since May 2004.
European stocks were skidding, as steady oil prices boosted energy stocks, eclipsing a dip in heavyweight mining shares. The key benchmark indices in France, Germany and the UK were all down. All US indices were in the red after poor payroll data, although the US consumer index indicated a healthy consumer confidence in March. The Conference Board's confidence index rose to 52.5, exceeding the median forecast.
Closer home, the government will raise petrol prices by 1.1% from Thursday in major cities that will migrate to Euro IV complaint fuel to help oil firms to recover the investment made for plant up-gradation. Diesel prices in leading cities including Mumbai would be hiked by Rs 0.26 a litre, while in Delhi it will rise by more than Rs2 because of taxes.
Indian exports are expected to rise by 15%-20% in the next year, said the trade minister. Foreign institutional investors was net purchasers of Rs579 crore and domestic institutional investors bought stocks worth Rs100 crore yesterday. The rupee was higher in afternoon trading.
Among stocks, Alok Industries (down 0.22%) will spend Rs300 crore in capacity expansion in 2010-11. The company, which produces polyester yarn, plans to double yarn capacity to 1,200 tonnes a day. Godrej Properties (up 2.6%) has entered into agreements to transfer 49% stake in unit Godrej Sea View Properties to HDFC PMS for Rs55 crore. L&T (down 0.8%) has secured orders aggregating Rs1,126 crore from various customers like Sterlite Industries India, Hindalco Industries, Tata Steel, Delhi Jal Board and Uttar Pradesh Jal Nigam Limited. IT stocks extended recent losses triggered by a recent rally of the rupee against the dollar. India's largest software services exporter by sales Tata Consultancy Services (TCS) fell 2.4%, extending the preceding three days' losses. Ahluwalia Contracts (India) was up 4.3% after the company won orders worth Rs425 crore for civil and structural construction.
The market trend is down. It will probably move sideways with a downward bias and find support at 17,400.
The market has risen in the March quarter. Based on past patterns, what should we expect? Here is a study of the historical behaviour of the markets over the past 25 years
After witnessing a few jitters in the month of January, stock markets have rebounded well to end the March quarter on a positive note. The Sensex ended the March quarter with a marginal rise over the December quarter of last year. How does this performance augur for the June quarter and even the rest of the year?
Moneylife took a look at the historical data, searching for some clues in the market patterns. We started from the year 1986. Over these years, the Sensex has ended the March quarter in positive territory 13 times (excluding this year).
Out of these 13 occasions, the market has continued its upward momentum into the June quarter as many as nine times. That translates into a high 70% probability of the June quarter ending in positive territory. Indeed, the bulls have been on a roll for the past seven consecutive weeks and are not slowing down. However, it means that valuations have run up substantially now. The market is now trading at a high P/E of 19 based on the expected March quarter results.
The June quarter trend over the last eight years shows an interesting pattern. Since 2002, the Sensex has ended the June quarter in the opposite direction every year. Last year, it ended positive. Will the alternating trend continue?
The bulls have a lot to cheer about—strong corporate performance supported by strong FII inflows from countries with low interest rates may just turn out to be the booster dose for the markets as we head into the next fiscal year. Unless the Sensex gets weighed down by the high valuation and sudden global shocks, it may proceed to turn in a solid performance in the coming year.