Raised Interest Rates Benefited NRIs

Reserve Bank of IndiaAiming to control the inflation, the Reserve Bank of India has raised the interest rates on March 30. This unexpected increase in interest rates caused a drop of over 600 points in the Indian stock market on April 2 though the market recovered.
Long-term investor, such as NRIs have fully exhibited this response as they pumped nearly Rs.1 billion in months of February and March, whereas, earlier, they were sellers mainly due to high rupee-dollar rate and valuation concerns. The mutual funds have also eased off and become attractive for the investor.
During the period of April 2006 to January 2007, portfolio investment by corporate bodies, foreign institutional investors and NRIs was $6.8 billion. Group escape from the market remains an unlikely prospect due to firm basic economic fundamentals and economy is still projected to grow around 7-8 per cent. This interest rate increase will surely calm the overheated Indian economy to a great extent.
Since the cost of borrowing money has gone up for the quoted companies, the prices of their goods are expected to go up, which would result in lower consumer demand. So, lower company dividends and lower returns on the equity investment are expected.
The conservative NRIs should wait till the market goes down more. Also, the best approach is to steadily enter the equity market and mutual funds over the next few months.
The property prices are also expected to decline as high interest rates mean high mortgage payments; thus the buyers find it difficult to pay the high monthly installments. Thus the demand for housing should slacken and NRIs can move in at that point.
But property developers in the metros can maintain their high prices for over six months or longer as they have overseas funds to develop new projects.
Whereas, the developers in Tier Two cities and towns will have to ease off earlier and lower their prices in order to exist. Prices are expected to decline in the second half of this year in these cities and towns. The price decline in these Tier Two cities could be steeper than the metros.
Gulf NRIs can target towns in Tier Two or even smaller townships and villages to receive maximum benefits from lower housing prices. Metros also have new companies opening offices and requiring housing for their executives, so their prices will seize for a while.

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