Home loan players in India offering festival discounts

By Vipin Agnihotri

In my opinion, there is a lull in the home loan interest rate market in India with plenty of banks and housing finance companies announcing festive offers with lower interest rates for new borrowers.

It has come into the notice of The India Street that lots of other lenders are also going to follow suit in the coming days. The pivotal factor here is that even as there is some amount of easing, it is too early to predict a soft interest rate regime ahead, as large chunk of lending institutions will wait and watch for signals from the RBI’s credit policy in October before minimizing their prime lending rates.

It is worth mentioning in this regard that HDFC has cut its floating rate by a quarter percentage point (0.25 %) to 11 per cent, in addition to lowering the processing fee. On the other hand, Bank of Baroda has pruned interest rates by 50 basis points to 11 per cent for loans up to Rs 20 lakh and 11.25 per cent on loans above Rs 20 lakh. According to sources, Allahabad Bank too has made a one percentage cut to 12 per cent for 25-year loans.

If experts are to be believed, increasing home loan rates have severely impacted the housing sector, as their growth have dip to 26.6 per cent in 2006-07 from 29.1 per cent in 2005-06. In my opinion, home loan companies are looking to increase their business and have adopted this strategy for growth.

Point to be noted here is that the current round of rate reduction will be the first since November 2004. Interestingly, between then and March 2007, interest rates rose from 7 to 12 percent. Most of the experts feel that till property rates ease substantially any marginal reduction in interest rates will not have much impact.

I completely agree with the fact that lowering interest rates for the festive season is business promotion, hoping to bring in some spurt in activity but that may not happen. All in all, one can safely say that correction in property prices is the critical factor that will create enthusiasm to go in for home loans.

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This Week’s Hot Stock: HDFC

Sundaramurthy Vadivelu

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Introduction:

Housing Development Finance Corporation (HDFC) was founded by Hasmukhbhai T. Parekh, who was a General Manager at Industrial Credit and Investment Corporation of India (ICICI). HDFC was incorporated in 1977 with the primary objective of providing long term home loans. Now HDFC has diversified into banking, general/life insurance, mutual funds etc.

Business Overview:

HDFC provides loans for resident Indians and NRI’s for purchase of house, flat or bungalow from developers as well as for self constructed houses. Several options are available to the customers, including:

• Maximum amount (upto 85% of cost of property)

• Maximum term (20 years)

• Fixed interest rate / adjustable interest rates

For repayment of loans, HDFC provides following options:

• Flexible loan instalment plans

• Trench based EMI (i.e. customers can fix the installments they wish to pay till the time the property is ready for possession)

• Accelerated Repayment Scheme (i.e. increasing the EMI and replaying faster)

HDFC also provides home improvement loans for external repairs, tiles fixing/flooring, painting, plumbing, waterproofing etc. For adding space or additional rooms, it provides home extension loans. Other type of loans include short term bridging loan(selling old property to buy a new/bigger home), land purchase loan, loans to professionals for non residential purpose (such as clinic, office etc.) and mortgage loans for marriage/education/medical expenses.

HDFC offers two kinds of deposits, at fixed and variable interest rates and it has been awarded “AAA” rating for its deposits from both CRISIL and ICRA for the twelfth consecutive year, representing highest safety as regards timely payment of principal and interest. Several plans are available, including monthly/annual income, cumulative/non-cumulative and senior citizen deposits.

HDFC Realty, the real estate property division of HDFC, helps customers in finding opportunties for buying/selling/leasing/renting of residential property and commercial plot/land across various cities in India. HDFC Realty is managed by Home Loan Services India Private Limited, a wholly owned subsidiary of HDFC.

HDFC has promoted HDFC Bank, which offers personal, corporate and forex banking solutions.

HDFC Mutual Fund has wide range of schemes to suit the investors – equity funds, debt funds, balanced funds and liquid funds.

HDFC Standard Life Insurance meets the insurance needs of individuals as well as corporates and offers insurance, gratuity, leave encashment and superannuation products.

HDFC has joined hands with Barclays of UK to promote Intelenet, a BPO company that provides IT solutions to banking, finance, retail, telecom etc.

Financial Performance:

HDFC has registered consistent growth in net profits and EPS in the last five financial years. Its net profits have more than doubled between 2002 and 2007 from Rs.690 crores to Rs.1482 crores and EPS has surged from 28.3 to 69.5.

http://groups.google.com/group/theindiastreet/web/HDFC_FIN_PERFORM_210907.jpg

Stock Market Performance:

HDFC is a constituent of Sensex (Scrip Code: 500010, Free float market capitalization: Rs.57,269 crores; weightage: 5.23%) and Nifty (Ticker: HDFC, FFMC: Rs.53,050 crores; weightage: 2.27%). HDFC Bank, promoted by HDFC, is listed at New York Stock Exchange (NYSE) and traded on ticker HDB.

Foreign Institutional Investors (FII’s) have a huge stake in HDFC (68.31%). Foreign Financial Institutions have 10.4% stake in the company.

The face value of the stock was split in the year 1999 (from Rs.100 to Rs.10) and HDFC issued 1:1 bonus in 2002.

At NSE, it is also traded in Futures & Options segment with a lot size of 150 shares.

Let us now discuss the short / medium / and long term outlook for the stock.

Short term outlook:

http://groups.google.com/group/theindiastreet/web/HDFC_D_210907.jpg

The daily chart of the stock is displayed above. Its short term resistance at 2100 was broken on September 6. It has gained about 12% after the breakout. But, it has made a high of 2424 from a low of 1786 or about 36% without any significant correction. Short term investors need to take note of this and consider 2100 as a support for entering the stock. It is also close to 50% retrcement level at 2106. 2031 may be considered as another major support.

So, short term investors may wait for corrective declines.

Medium term outlook:

http://groups.google.com/group/theindiastreet/web/HDFC_W_210907.jpg

There are no major revesal signs in the weekly chart of the stock. Medium term investors may continue to hold the stock. When calculated from a low of 962 the technical target for the stock works out to 2519. Support exists at 1828. Since the stock has already touched a high of 2424, it may not be wise to enter at this stage; however, if a sharp correction occurs, entry may be considered at support levels.

Long term outlook:

http://groups.google.com/group/theindiastreet/web/HDFC_M_210907.jpg

We don’t see any reversal signs in the monthly chart either. After adjusting for split/bonus, the stock has appreciated 12.72 times between September 1997 and now. Long term investors may book partial profits. But entry may be avoided at the current levels.

Conclusion:

• Short term investors may enter the stock on declines at support levels

• Medium term investors may consider booking profits

• Long term investors may continue to hold/book partial profits

Sundaramurthy Vadivelu

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HDFC Bank to go Rural

By Vipin Agnihotri

HDFC is chartering an aggressive expansion plan to leave footprints in all districts in the most populous state of the country, Uttar Pradesh in a phased manner. The bank is all set to come up with hub and spoke model to reach out to its prospective rural clients. Neena Singh, executive vice president of the bank pointed this out in an exclusive chat to The India Street.

“At the first stage it will have a full fledged branch (the hub) equipped to deal with the needs of the rural economy. At the next stage (the spokes) are designed to reach out to its clients in the villages across the country,” she said.

“We had an agri meet today to apprise our agri-relationship managers on the ways to milk the catchment areas in Uttar Pradesh and Uttarakhand,” pointed out Neena Singh. A detailed plan aimed at strong rural presence was being chalked out. In this financial year, the bank would be expanding presence in 19 districts in the state, she added.

At the next stage of its rural operation, Singh said, the bank was planning point of sale machines, capable of cash deposits and withdrawals and it was also allowing its clients a limited number of free transactions through ATMs of associated co-operative banks and public sector banks.

"Another step is our decision to take the more demanding route of connecting with clients directly, rather than taking the easier direct sales agent route. Agri extension education camps will be held in districts to increase farmer’s awareness of our products and also of farm equipment, yield efficiency, farm machinery and other inputs of importance for farmers," she said.

It is worth mentioning in this regard that specific rural products have been planned like tractor loans, kisan gold cards and warehouse receipts. HDFC bank’s rural clients would also be given nearly all the urban-centric banking products including savings account, fixed deposits, automobile loans, foreign exchange facilities and loans against gold.

And the rural rich population will get wealth management solutions, mutual fund products and stocks and commodities trading facility by the bank. The bank’s employees will also be trained to offer investment advice to its rural clients.