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Market round-up: Note ban stalls recovery in two-wheelers

LiveMint logoLiveMint 10-05-2017 Livemint

Two-wheelers were on a roll in the first half of fiscal year 2017. Factors like a normal monsoon after a two-year dry spell, lower interest rates along with relatively low oil prices drove demand. Monthly sales rose by a robust average of 16% until October. But with demonetisation in November, sales dropped to pathetic lows, clocking an average 6% contraction until March. The note ban created a larger liquidity crunch in the rural markets to which two-wheelers have a significant exposure. Although recovery is under way, looks like it is taking longer for two-wheelers to ride into recovery compared to passenger cars.

RBI REERs flag an overvalued rupee

The rupee has gained more than 4.5% in the last three months on the back of dollar inflows into domestic equity and debt markets. While a strong rupee should sit well with a net importer like India, a fast appreciation of the exchange rate is not desired. One of the measures of overvaluation of the rupee is the real effective exchange rate (REER) of the Reserve Bank of India (RBI). There are two REERs that RBI details in its data releases. One is derived from a basket of six currencies, while the other is from a basket of 36 currencies belonging to trading partners. Both REERs show that the rupee is overvalued by a huge margin. The six currencies-based REER puts the rupee’s overvaluation at 8%, while the 36-currency one puts it at a massive 21% as of April. RBI too has raised its interventions in the exchange rate market as evident from its latest bulletin.

New affordable housing lenders taking more risks

New entrants to the affordable housing market are taking on more risks as business models are still evolving for them. A look at the gross non-performing assets (NPAs) of older housing finance companies and new entrants show that new lenders have a higher delinquency ratio, according to Crisil Ratings. Also, the customer profile in the affordable housing segment is largely non-salaried. In case of exigencies, the limited financial flexibility leads to potentially higher volatility in cash flows, impacting the portfolio performance, the rating agency notes in a recent report.

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