This is an old joke – and you will find it on the net…
Albert Einstein went to heaven and God introduced him to 3 people. AE asked the first person ‘What is your IQ?’ he replied – 190 sir! AE said ‘we can discuss my physics theories’..he asked the second person the same question..the second man replied “110 sir!’ . AE said ‘We can discuss art and music. The third person said ’65 sir’.
Albert Einstein said “Where are interest rates headed, banker?”
Now it may be so easy to spot a banker (all of us are in some ways a banker are we not)..or only somebody with an IQ of 65 will want to risk such a guess…here is my guess.
Personally I am happy locking my money at 10-11% p.a. for 2 years – however I like bonds better than longer maturity debt funds. My guess is interest rates will go up at least by 100 basis points, before it makes its southward journey. More importantly the markets do a big sell off when interest rates are headed north. Take the case of mutual fund holdings in IDBI bank. It is a public sector bank and being a new bank does not have too much of CASA. So such a bank is an easy bank to sell. Most mutual funds have bailed out in Jan / Feb and the mutual fund holding is down to NIL.
The selling pressure has not been so severe on Hdfc bank as it has been in case of Idbi bank. Axis bank has also seen a similar beating down in quantity.
The surprising thing is that the interest rates may not hurt them as much as the method of calculating interest on savings bank account will. For many lazy people (including yours truly) this is a good move. However it is likely to hit SBI, Axis, Hdfc bank extra hard because these banks have a very high number of dormant savings accounts….
So here is my brave take on interest rates: Initial movement seems to be north – or same rates for higher risk (other psu banks paying 10% vis-a-vis SBI’s 9.7%)..then maybe we will see 11%…by then if crude is much too high for the industry..we will see interest rates go south.
If I am wrong, remember I am a banker. If I am right, please remember you read it here first.
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