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Now, get ready to pay fatter EMIs
Published on 29 Jul. 2010 12:04 AM IST
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Your Equated Monthly Instalments (EMIs) are bound to go up soon. Though not sure how soon it will happen, senior bankers and financial experts say the RBI policy review on Tuesday clearly indicates that interest rates — both deposit and lending — are set to rise. As for investors in stocks, they feel that interest rate sensitive sectors like auto, real estate and so on could be marginally hit by rising rates in the economy. Besides, investors in debt mutual fund schemes can hope to earn more from liquid, Gilt schemes. However, the policy is negative for long term debt schemes, say experts.
“The policy rates have gone up and there is an upward bias on interest rates and there is also some pressure on liquidity. So, the chance of rate hike is very much there. Only the timing is not clear,” says MV Nair, chairman, UBI.
Moving on to the investment side, experts say the policy review offers a chance to debt investors to earn better returns from liquid and gilt schemes. “Investors should look at parking money in liquid schemes instead of bank deposits as they have the potential to offer attractive rates. These schemes mostly hold securities which have an average maturity of 40-45 days. So the repricing would reflect immediately in the returns,” says Murthy Nagarajan, head - fixed income, Tata Mutual Fund.
Experts like him feel that the long term debt schemes would face rough weather for sometime. Some stock market participants feel that further hikes in policy rates by the RBI (it is expected to hike rates again in the next quarter) are dampeners for interest rate sensitive sectors like automobiles, banking and real estate.
However, some players say these fears are exaggerated. They say the policy is positive for the market as it is tackling inflationary pressure without hurting the growth rate.
Automobile and residential property sectors could be marginally hit, but only a little later. But I don’t think banking would be hit anyway,” says Deven Choksey, Managing Director, KR Choksey Shares & Securities.

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