Sensex, Nifty may continue to weaken: Tuesday Closing Report

We mentioned yesterday that a short rally is likely but the trend is down. Today the market opened positive but fell in the afternoon session. A close below 5,630 on the Nifty may lead to a short but sharp decline


The market pared the gains accrued in the morning session and settled in the negative on selling pressure in blue chips. We may see the downtrend on the Nifty continuing in case the index closes below 5,630.The National Stock Exchange (NSE) saw a volume of 65.51 crore shares and the advance decline ratio of 515:935.
The market opened on a positive note tracking supportive global cues and in-line results announced by Reliance Industries and Axis Bank on Monday. The US markets settled higher overnight on better-than-expected earnings report from Citibank. Reflecting the optimism, the Asian markets were higher in morning trade today.
The Nifty opened 5,706, 19 points over its previous close and the Sensex started off trade at 18,785, a gain of 71 points. The market hit its intraday high in initial trade itself with the Nifty rising to 5,714 and the Sensex going up to 18,801.
However, profit booking at the highs saw the indices trimming their gains and remaining range-bound in the morning session. The losses intensified in noon trade even as the European markets opened firm.
Selling pressure in capital goods, oil & gas, banking and fast moving consumer goods stocks pushed the market into the negative around 1.30pm. The market continued its southward journey and touched its lows around 3.00pm. The Nifty fell to 5,636 and the Sensex contracted to 18,549, at their lows.
The market closed near the lows weighed down by selling blue chips. The Nifty settled 39 points (0.69%) down at 5,648 and the Sensex declined 136 points (0.73%) to finish at 18,578.
In the broader index space, the BSE Mid-cap index dropped 0.72% and the BSE Small-cap index declined 0.41%.
BSE Consumer Durables (up 0.21%) and BSE TECk (up 0.05%) were the only sectoral gauges that ended higher. The top losers were BSE Realty (down 3.05%); BSE Metal (down 1.89%); BSE Capital Goods (down 1.51%); BSE Power (down 1.32%) and BSE PSU (down 0.93%).
Seven of the 30 stocks on the Sensex closed in the positive. The key gainers were Maruti Suzuki (up 2.13%); Hero MotoCorp (up 1.70%); Bharti Airtel (up 1.65%); Sun Pharma (up 0.52%) and HDFC (up 0.47%). The major losers were Mahindra & Mahindra (down 3.66%); Tata Motors (down 2.62%); Tata Motors (down 2.62%); Tata Steel (down 2.45%); Hindalco Industries (down 2.38%) and Sterlite Industries (down 2.26%).
The top two A Group gainers on the BSE were—Essar Oil (up 6.82%) and United Spirits (up 4.15%).
The top two A Group losers on the BSE were—HDIL (down 5.76%) and Reliance Communications (down 4.93%).
The top two B Group gainers on the BSE were—Niraj Cement (up 19.99%) and Hexa Tradex (up 19.89%).
The top two B Group losers on the BSE were—GSL Nova Petroproducts (down 13.79%) and Jai Mata Glass (down 13.04%).
Out of the 50 stocks listed on the Nifty, 11 stocks settled in the positive. The top gainers were Axis Bank (up 2.05%); Maruti Suzuki (up 2%); Hero MotoCorp (up 1.84%); Bharti Airtel  and Cairn India (up 1.53% each).DLF (down 4.42%); M&M (down 3.38%); ACC (down 3.17%); Tata Steel (down 2.64%) and Reliance Infrastructure (down 2.48%) settled at the bottom of the index.
The Asian markets closed in the green as better-than-expected US retail sales report rekindled hopes of Asian exporters. Besides, strong earnings from Citigroup boosted financial stocks.
The Shanghai Composite added 0.01%; the Hang Seng rose 0.28%; the Jakarta Composite gained 0.36%; the Nikkei 225 surged 1.44%; the Straits Times advanced 0.12%; the Seoul Composite climbed 0.83% and the Taiwan Weighted settled 0.70% higher. Bucking the trend, the KLSE Composite shed 0.06%.
At the time of writing, the key European markets were trading between 0.58% and 0.70% higher and the US stock futures were in the positive.
Back home, foreign institutional investors were net buyers of shares totalling Rs20.16 crore on Monday whereas domestic institutional investors were net sellers of equities aggregating Rs85.52 crore.
Engineering and materials handling equipment maker, Elecon Engineering has received a letter of intent from mining major NMDC worth Rs17.13 crore for two lump ore stackers for the latter’s Bacheli and Kirandul Complex projects. The stock was down 0.41% and closed at Rs48.50 on the NSE.
IFGL Refractories, which clocked a turnover of Rs600 crore in the last fiscal, has scaled down its growth target for 2012-13 in view of the slowdown in the global as well as domestic steel industry. The stock declined 1.62% to settle at Rs48.50 on the NSE.


Home loan interest rates: Games banks and financial institutions play

When home loan interest rate is reduced, the benefits are passed on to new customers while an increase is applicable to all old customers. Why banks, lenders are allowed to indulge in this jugglery in the name of floating rate of interests?

Here comes the good news. But before you hear the good news, let me tell you there is an irony attached to this good news. The same news which is good for some prospective customers is bad for large number of existing customers. Three home loan players have reduced the rate of interest on their home loans but the reduced rates are applicable only for the new customers. These three institutions are ICICI, HDFC and Vijaya Bank. On 12 October 2012 these institutions announced a reduction in the rate of interest on home loans upto 1%.  The reduced rate of interest is obviously meant to attract new customers on the occasion of forthcoming festival of Diwali when many customers decide to book home and go for home loans.

This move has once again raised the most perplexing question related to lending practices of banks, “Why is that when rate of interest is reduced on home loan, benefits are passed on to new customers only, while an increase in rate of interest is applicable to old customers?”  Why are banks allowed to indulge in this jugglery in the name of floating rate of interests?  Let us investigate this question in detail. Banks and financial institutions generally do not touch their BPLRs (Base Prime Lending Rates) and Bank Rate. These institutions only adjust the spread that they charge on home loans below PLRs and above Bank rates. So for example if the BPLR of a bank is 16% and it was providing a spread  of PLR minus 5% for an existing customer, for new customers the rate is changed by keeping PLR at 16% but changing spread to 6% which automatically changes the rate for new customers. Similarly in case of Base Rate, the rate is kept unchanged and the spread charged over the base rate is adjusted.

Now let us look at reasons that banks often point out for doing this and not adjusting rate of interest for all customers. Though banks do not have a very tangible answer for this they try to provide some answer which sounds logically flawed but hardly draws the attention of the regulator i.e. Reserve Bank of India (RBI) .The most unacceptable logic given is that since the cost of borrowing for banks for existing customers is high, they cannot pass on the benefit of reduced rate to existing customers. Hence they make the benefit available to new customers. This logic seems totally flawed.

Let us analyse two different scenarios for understanding the logic extended by banks. Let us look at the practice being currently followed by HDFC, one of the leading players in home loan market. If you have a home loan from HDFC, the financial institution allows you the benefit of the new rate on interest by charging an amount which they call as “conversion fee”. So if you want the benefit of reduced rate of interest pay the conversion fee and get the benefit of reduced rate of interest, even as an existing customer. This amount depends on the home loan availed by you. The surprising thing here is that HDFC allows one to go for new rates multiple times as an existing customer by a paying conversion fee every time you want rate of interest to be changed on your loan. This shows that cost of borrowing has very little significance in policy-making and HDFC wants their existing customers to pay a fee post which they are ready to pass on the benefit of reduced rate of interest. The fee charged is not good enough to compensate the so called cost of borrowing. This shows that the practice followed is unethical and needs attention of the regulators.

But much more than this, what is unfair is the other practice followed by banks and financial institutions. If you have an existing loan from one bank and want to shift it to another bank which is offering lower rate of interest, you are entitled to get the benefit of a reduced rate of interest. So as a customer you again end up paying a processing fee and some costs attached to the paper work. This again shows that cost of borrowing has very little role to play in this. The processing fee is a nominal amount generally compared to the home loan amount.

These two practices followed by banks and financial institutions shows the unfair practices being followed by them which they do in the guise of pricing of products which seems to be the natural right of these institutions in absence of clear cut regulatory guidelines. While rate of interest on fixed rates, whether deposits or lending may remain same, it does not make sense to do the same on floating rates? But is the regulator listening?



Dayananda Kamath k

5 years ago

floating rate regime is one of the most abused system to loot the borrowers as applied in india with active connivance of the regulator Reserve Bank of india. in floating rate and at every change of interest announced by banks they do not inform what aspect of the floating rate is being changed by the bank. ie whether they have changed base rate or mark up. this is basic need for transperancy in administration of floating rate. further in every sanction they have to clearly mention what is interval for resetting the rate ie once in quarter or halfyearly or yearly. and the rate should be reset only on these intervals if there is any change in base rate. but none of the banks follow this. it is violation of the contract act also. this matter has been brought to the notice of governor reserve bank of india and also followed up but no action so far.

Sachin M Regundwar

5 years ago

It is true even with public sector banks like LIC Housing finance. I was offered the loan with a spread of 3.5% Later on, I found that this spread is changed to 2.5% only. When, I spoke to the concerned officer, I was told that the offer was only for 1 year and later on it depends on bank to decide the spread. Still, I am not satisfied with their answers. I want to take up the matter to higher ups, but I don't know how to go ahead.


5 years ago

A very informative article and what you have stated above wrt HDFC is very true. And charging of conversion fees is very unfair and even if home loan is shifted to some other bank then also amount of proceesings is more or less same as compared to conversion fees. But appropriate authorities should come forward and look into these matter in the interest of the public.

Standard Chartered Bank to pay Rs2.97 lakh for deficient service

Delhi resident Sunita Verma had alleged that her car, a Maruti Omni, bought on a loan from StanChart was taken away by the bank on default of payment and despite her paying the remaining amount the vehicle was sold

New Delhi: The State Consumer Commission has dismissed a plea filed Standard Chartered Bank (StanChart) against a district forum order asking the bank to pay Rs2.97 lakh to a loanee for seizing her car for non-payment of Rs30,000 and selling it despite subsequent payment of all dues by her, reports PTI.


The vehicle was sold after the borrower refused to take it back as its crucial parts had allegedly been removed, rendering the vehicle to a non-working condition.


The Delhi State Consumer Commission observed the woman's willingness to pay the remaining loan amount of Rs30,000 showed she was keen to take the car back and there must have been some compelling reason for her for not doing so.


"It appears that statement of respondent (loanee) that the vehicle was not in a condition for taking possession needs to be accepted. It is evident that on one hand the appellant bank (Standard Chartered) is entering into an arrangement to return the car on payment of Rs30,000 and on the other hand its officers allowed parts of the car to be removed which is a case of negligence and serious deficiency-in-service.


"We are of considered opinion that a case of deficiency in service is made out beyond doubt and to serve the ends of justice it would not be proper to interfere with the order of the district forum. The appeal is accordingly dismissed," the bench presided by Justice Barkat Ali Zaidi said.


In her complaint to the district forum, Delhi resident Sunita Verma had alleged that her car, a Maruti Omni, bought in August 2001 on a loan from the bank was taken away by it on default of payment and despite her paying the remaining amount the vehicle was sold.


While admitting that Verma had paid the remaining Rs30,000 to it, the Standard Chartered had alleged that the car was sold after she refused to take possession of it.


The district forum, however, had held the bank guilty of rendering deficient service and had directed it to refund her Rs2.37 lakh she had paid to clear her loan and also another sum of Rs60,000 as compensation and litigation cost.


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