Right Time to Take a Home Loan

       Some of my fiends recently told me that because of the high Interest Rate during the past three years they have postponed to buy a  Residential Home. Now it seems that  Interest rate becoming down and they are waiting for next one or two years for the Interest to hit rock bottom. But I have a different view, which like to share with you. In my opinion this is the best time to buy a home with a loan. 

The first thing is once you adjusted with high Interest rate and then it coming down (talking about Floating Rate Loans) it would be great benefit to you. Other wise, if interest rate continuously rising, you may be in trouble. 

The second thing is a typical home loan period in India is estimated for 12 years. Within a period of 12 years most probably we should pass through an Economic cycle, means that we can see a bottom and peak of the economy. In the worst period normally the interest rates will be in the high and in the best time for economy the rates would be low. It clearly shows that within a typical home loan period we can see a bottom of the interest rate and also a peak. So it assumes that we would get the average Interest rates within the entire loan period. 

The third concept is when the interest rate at high, normally all construction activity would be dull. It seems that there should be ample labour supply (at least in the theory), which is one of the critical factor of constructing a Home.

If you intend to take home loan with tenure of 10 years, it is better to go for a 15 year loan, especially if you eligible to get Tax benefit.  But you need to do one thing, the difference in the EMI should be deposited in a Bank RD(Recurring Deposit). This is much better than a 10 year loan. Let me explain it with an eg.

Suppose we taking an Rs. 20 Lk home loan with an Interest rate of 10.5% with a tenure of 10 years, EMI would be Rs. 26987/-. Within a period of Ten years you need to pay Rs. 3238440/- (26987*120 months). In this case Interest component will be Rs. 1238440/- (3238440-2000000).

In the second  case if the same amount of loan has taken with tenure is 15 years EMI would be Rs.22108/- Within a period of 15 years we need to pay Rs. 3979440/- (22108*180). In this case Interest portion will be Rs. 1979440 and additional payment will be Rs. 741000/-(3979440-3238440)

Suppose you taking a loan with 15 years and the difference in EMI (26987-22108= 4879 ) is depositing in a Bank RD with an interest rate of 9%, after 15 years it would go up to Rs. 1848905/-.  With an additional payment of Rs. 741000/-, you can earn Rs. 18.48 Lk!. In addition you will get Income tax benefit for 15 years for the extra Interest payment too.

In the above example there is problem. in India maximum RD period is 10 years. Here you can do one thing the amount (Rs. 4879/-)  deposit for a period of Ten years in RD, it would grow to Rs. 947643/-. After ten year this amount deposit for 5 years with a normal Interest rate of 8% for a period of next Five years ( assumes that an interest of 8% will get at that time, but there is no guarantee) the amount would be at Rs. 13.9 Lk !!. Anyway it seems much better.If you smart you can invest the amount after 10 years another RD for the next five years, will get some extra benefits.  So think about it seriously. 

Don't worry to take a debt to make a Home, because you are taking a liability to create an Assets, which only appreciate in the future.

Nb: Here there are some assumptions which are given below:

1. After ten years interest rate for a Five year FD will get an interest rate of 8%.

2. RD will get in to your hand without any taxation. (But remember that I didn't consider the  additional Income Tax benefit on the higher Interest outgo of a 15 year loan).

Requesting your comments regarding this view. It would be great help for others too. If you like this post please share it to your friends. If you like it and don't like to share it through this blog, no problem just copy and sent it via your email.

I can be reached at:

valueinvestmentviews@gmail.com

Important Notice

     This is to inform you all  that I am temporarily discontinuing Stocks recommendations in this blog till getting further clarity on the "SEBI's  Research Analysts Regulation" which has come into effect from December 1st, 2014.

IFB INDUSTRIES - Target Crossed

          I have recommended IFB INDUSTRIES LTD on 16 October, 2014 in my "Diwali Recommendation" list at Rs. 320/- with a target of Rs.500/- . After it touched a new high of Rs. 533/- it is hovering at around Rs. 480/-. Despite this stock seems good to stay  invested even in the current levels, all  are requested to Book partial Profit as it crossed the first target levels. 

(To read the report please see October 16th post -"Diwali Picks- Samvat 2071-72".

To - All Readers of this blog

Dear Friends,

        I got few mails from the readers of this blog, mostly with suggestions even some sarcasms. Let me extend to all of them a warm welcome. But, once again I would like to share my intention of this work.  

Kindly note that this blog is not a research analysts creation. It is not intent for making money.  Here I am just sharing my views to all readers about few stocks. All information are collected from publicly available sources.  I feel that Nifty @ 8600, almost all stocks are overvalued, still  cheap stocks are perhaps cheap in quality too. So there is a high risk of selection.

I can only write down my views, ( means) unable to jack up the stock price. That is why I am not giving a specific target to most of the stocks which I suggested. All  readers are requested to self study before investing any of the stocks I recommended here.

Please feel free to share your views regarding this blog, because it surely help a lot to improve the quality of my effort.

I can be reached at:

valueinvestmentviews@gmail.com

SANGHI INDUSTRIES LTD - Invest

Market Price : Rs. 48.5

BSE Code: 526521

NSE Code: SANHIIND

Equity Capital: Rs. 220 crore

FV: Rs. 10/-

Market Cap: Rs. 1070 crore

Book Value/sahres: Rs. 40.5

Web: www.sanghicement.com

Even though Cement is the largest consuming product in the world on per capita basis, Cement Industry's fortune is largely depends on GDP growth. On an average rule, Cement Industry is growing 1.2 to 1.5 times of the GDP growth of the country.

Mostly, India is a country with over supply of cement production. In the Indian scenario, a typical cement company needs 65% capacity utilization to be break even, 75% capacity utilization is comfort and of or above 85% capacity utilization is excellent. 

In India, about 65% of the cement had is consumed by Housing Sector, 15% in Infrastructure sector and the rest is consumed my Commercial & Industrial construction and a small portion goes to exports.

Fuel is accounts a major portion of the cement production cost whether it is Coal, Furnace oil, electricity and transportation cost of raw materials or end product. If a company can save in this area, its bottom line will be appealing. 

According to analysts estimate, Indian GDP is expected to grow over 6.5% in the next year and after that it will grow by 7.5%. Unexpected fall in the crude Oil prices is fortunates the Govt as it need not to spend large sum of Fuel Subsidy. In the November, 27th meeting of OPEC decided to not to cut Oil production is favour for India as the crude oil price expected to be at low level at least for the next few months. We feels that the savings from the subsidy, Govt will utilize in to their ambitious infrastructure projects. Interest rate in India seems to going to fall as the inflation reduced. It will also boost the Housing projects and other investments across the Economy, also boost the cement demand.

In such a scenario, Sanghi Industries Ltd, a well managed mid sized cement company with attractive valuation feels a good investment opportunity for medium term perspective. I am not going for a one-to one financial analysis, just giving a view about this company. 

Sanghi Industries Ltd (Sanghi), better known as "Sanghi Cement" is Gujarat based mid-sized cement company promoted by Sanghi brothers.  Having an installed capacity of over 3 MTPA capacity, Sanghi is the only Five star rating cement company in India. Now the company is utilizing almost 85% of its capacity.  The ongoing brown field expansion which is expected to complete by next year, the company's capacity will be at 4.1MTPA. For the better and cost effective transportation, the company have Jetty in Gujarat and Mumbai also it propose to sets up new jetties on long distance places at Kochi and Goa, where higher demand and margins. It also propose to add Six vessels to support the cost effective transportation by the Sea. 

Earlier, the promoters of the Sanghi brothers had some dispute over the company management, now it seems almost settled. Any way the promoters of the company acquiring shares through open market purchases. During the last two years they have acquired 10% stake through creeping acquisition route, which shows the confidence of the management in their company.

The company's September quarter financials was poor, thanks to a 38 days shut-down on its clinker plant. Sanghi has reported a turn over of Rs. 181 crore in the second quarter ended September 14 as against 210 crore reported in the same quarter of the previous year. However, Net profit reported at Rs. 1.8 crore from a loss of Rs. 18.5 crore reported in the previous year. The notable point is , as a result of the restructure and pay-off of some of its debts, company's  interest out go declined sharply by 40% to Rs. 3.6 crore in the September quarter. We feels Sanghi's margins will improve in the future on every aspects. At the current market price of Rs. 48.5, it seems a good medium term bet.

Please note that I have no vested interest in this company.

Gulf Oil Lubricant - Target achieved

     On 16 October 2014, we have recommended Gulf Oil Lubricant Ltd at Rs. 308/- ( as "Diwali recommendation") with a one year target of Rs. 450/-. After one and a half month it crossed the target. We suggesting to sell 50% of your holdings and keep the balance to avoid risk, cash on some profit and to get better return in the future. ( To read the report please see October 16th "Diwali recommendation")

Pioneer Embroideries Ltd - Repeat

    

   On November 16, we have recommended to invest in Pioneer Embroideries Ltd when it was Rs. 22/-. Presently the stock is trading at Rs. 19/-. We feel the stock will be a potential Multi -bagger in the medium term because the promoters of the company infused about Rs. 10 crore in to the company by way of preferential shares issue, it settled/restructured  most of  its dues with banks and Financial Institutions. The company is in final stage of settlement with other Banks to settle the balance dues. Once again we like to suggest to invest in this stock those who having some patience.