What portion of your salary should you spend on loan EMIs?
Most people buy a house or a car by taking a loan from the bank, but do you know what is the maximum portion of your salary that you should spend on EMI? What is the 40 percent EMI rule? What are the disadvantages of spending more on EMIs? Among home loan, personal loan, auto loan and credit card bills, which loan should you eliminate first?
Markets this week have started on a positive note. With Nifty went up 0.61% and Sensex gained 0.38% on Monday. On the global front there is some positivity but also caution in the market as investors brace for development in US debt ceiling talk. Besides debt ceiling negotiations various factors will impact the market next week.
Global economy
Starting with the global economy, FOMC meeting minutes will be released that will give a further idea about the interest rate trajectory by Fed. Fed increased interest rates by 25 basis points in its last policy meeting and there were indications that rates won’t be hiked further. Currently Fed funds rate are in the range of 5-5.25%. So investors will dissect the minutes of the meeting to get further clarity. Powel on Friday showed a dovish stance in the press conference, increasing the prospects of a rate hike pause.
On the economic front, US economy may have witnessed slower GDP growth of 1.1% but it consumer spending is strong as retail sales went up 0.4% (MOM) in April. While the unemployment rate is at multi-decade low and the housing market has reportedly stabilized. PMI data will be released where the manufacturing and composite index is expected to come right at 50. A value above 50 shows expansion and a value below 50 indicates contraction.
In Europe PMI data will be released and the manufacturing index is expected to remain in the contraction zone, while services are estimated to continue showing expansion. Inflation rate in EU inched up in April to 7% and Christine Lagarde hinted that rate hike cycle in Europe is not over yet.
In the UK, CPI data will be a major event where headline inflation is expected to fall below 10% but core CPI may remain at 6.2%.
Domestic front
Earnings result is going on and this week major companies like BPCL, LIC, Vodafone Idea and Sun Pharma among others will come up with results.
On data front, inflation in the country is cooling as retail inflation has fallen to 4.7%, while whole sale inflation has actually moved in negative territory and came at -0.92% (YOY) in April. Meaning there was actually deflation.
However on the negative side, Bloomberg reported that there is still liquidity crunch in India, as its index for liquidity in India is in negative zone for quite some time. Although it has shown some improvement recently.
Other negative news was that sales of discretionary products like QSR, lifestyle and apparel have actually slowed in March quarter and also in April. Reason cited are fading pent up demand, high inflation and financial tightening.
Biggest market mover
The major eye will be on US debt ceiling talks. No progress was made in talks on Friday. Now as the deadline approaches investors may jitter, generally during uncertain times investors move to safe havens like the US dollar. This time it’s the US that’s causing trouble so don’t be surprised if investors might either move to gold or they might just keep cash, selling from all the assets. All in all, a delay would be detrimental to the Indian equity market. Due to this uncertainty, gold is gaining its charm.
At the same time, if the deal is passed and the debt ceiling is raised instant reaction might be a rise in US bond yields and the dollar, which in turn might put downward pressure on rupee.