@Leisure - Vol-20 | srei
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@Leisure - Vol-20

Newsletter
 

India - a calm island
in global turmoil

Intro: India is one of the world’s fastest growing economies. This is happening when the world is facing increasing economic turmoil and the global economic growth is forecast to slow down to 3.1 per cent in 2015, according to the International Monetary Fund (IMF). India, on the other hand, is surging ahead with a growth rate of 7.3 per cent this year.

Christine Lagarde recently remarked that ‘India remains a bright spot’ while referring to the state of the global economy. Ms. Lagarde said that global growth will be weaker this year and even in 2016, only a modest acceleration in the world economy can be expected. There is a combination of reasons why India is doing well, some of which are – recent policy reforms, pickup in investments and lower commodity prices – according to the IMF. The positivity around India is shared by the rating agency Standard & Poor (S&P) as well, which has affirmed its BBB- rating (long term) and A-3 rating (short term) when it comes to India’s sovereign credit ratings. S&P has said that India’s growth is outperforming its peers, and is on a modest upswing. S&P has said that the rating it has assigned to India reflects the country’s sound external profile and improved monetary credibility.

While globally there is still uncertainty about declining commodity prices, reduced capital flows towards developing economies and currencies being under pressure, India stands out like a shining star due to these trends:

  • Current Account Deficit (CAD): S&P estimates that India’s CAD will be in the region of 1.4 per cent in 2015 and will continue in similar territory through 2018. The country is now in a position of credit strength. India is less reliant on external factors when it comes to funding its future growth.
  • Forex Reserves: When it comes to foreign exchange reserves, India is doing much better than most other nations. The projected reserves at end-2005, according to S&P, are USD 357 billion or 7 ½ months of current account payments.
  • Fiscal Consolidation: The government is committed to a programme of fiscal consolidation in which the country is to be weaned off subsidies and improvement in fiscal performance to come through better revenue collection brought about by measures like general sales tax (GST). The government is also striving to expand the tax base in the country.

Conclusion: India is doing well because of the relative strength of its own domestic economy and favourable external factors like low commodity prices. The policies of the current government are proactive towards attracting investment and kick-starting the economy. IMF now forecasts that India will be the top economy among leading world economies in 2020. The optimism about India is global and things are certainly looking up for India as an economic powerhouse in the near future.

 

How Srei Equipment Finance Limited
uses technology to avoid bad loans?

Intro: Srei Equipment Finance Limited (SEFL) is a 50-50 joint venture between SREI Infrastructure Finance Limited and BNP Paribas Lease group. The company believes in using cutting edge technology and latest innovations to bring new dynamics to the equipment lending industry. The excellence that Srei Equipment Finance Limited has achieved in lending has been due to its experience in this sector and its ability to innovate and develop sustainable approaches.

Srei Equipment Finance Limited is determined to use the latest technology to continue its innovative approach. Here is how it is using technology:

  • Importance of technology in equipment finance: SEFL finances heavy equipment, a lot of which is vehicular. It is important for this equipment to generate revenue so that borrowers can service their loans. SEFL is leveraging technology to ensure that borrowers take full advantage of their purchased equipment and in cases where they aren’t doing so, the company encourages borrowers to utilise equipment to its fullest capacity.
  • How SEFL uses technology: SEFL is training its manpower to be tech-savvy and is investing in training and knowledge acquisition. The company is also regularly tracking technological developments in the field to keep itself abreast of latest developments. There is a core group in SREI, which assesses implications of technological developments on business.1
  • Use of technology in heavy equipment finance: In terms of equipment finance, an example of how SEFL uses technology would be the deployment of Global Positioning Satellite (GPS) chips on the heavy equipment that the company finances. This allows SEFL to keep a tab on movements of vehicles, which it finances. Since June 2015, Srei Equipment Finance Limited has GPS tracking on equipment worth Rs. 200 crore and within one year, the plan is to extend it to equipment worth Rs. 7,000 crore. GPS tracking devices are non-intrusive and help the company provide advice to borrowers on how to maximise the utility of the vehicles. These devices are also useful for recovery and safety purposes. In the coming three years, the company hopes to have GPS devices on 75 per cent of its vehicles. An important point is that the use of GPS is done with the consent of the borrower.

Conclusion: Technology can help both the lender and borrower work more efficiently. SEFL is committed to working with borrowers to help them do better by using latest technology; this service is a value addition to the services the company already provides. In the coming years, GPS use will add more security and lead to reduced default on loans in a sector that is prone to instability due to varying economic circumstances. The constant training of its manpower and deployment of latest technology tools will help bring about more innovative changes in industry lending practices in the future.

1http://economictimes.indiatimes.com/srei-infrastructure-finance-ltd/chai...

 
 

How inflation impacts your interest income

Inflation is an oft-repeated word in money matters. It is considered to be an ‘enemy’ which destroys wealth and hence, needs to be acknowledged and managed. So what exactly does the word mean and how does it impact you as an investor? Read on to learn all about it.

What is Inflation?
Can you remember the very first expense that you made as an adolescent or an adult? It could be purchase of a pen, shirt, shoes or just any product. It could even be a doctor’s fees or a train ticket. Now compare it with the cost of the same product or service today. Most certainly, it would cost you much more than what it did the first time that you paid for it. Only electronic items could be an exception in this. This phenomenon of continual rise in price of goods and services over time is called as inflation in money parlance. Inflation dents the real value of money over time. The same amount of money that you carry in your wallet will be able to purchase lesser and lesser over years.

Inflation and fixed income instruments
Fixed income instruments like deposits, bonds and postal savings products pay out a fixed rate of interest over a certain period of time. During this same period of time, your money happens to lose quite a bit of its value due to the silent evil called inflation. This means, though your money is growing in absolute numbers due to the accretion of interest, its real value is getting eroded constantly due to inflation. The worst part of inflation is that it is not readily noticeable. Though it increases prices by apparently small amounts year on year (say at 6%), it has a creeping impact on your finances over longer periods on a cumulative basis due to compounding.

How you can protect your investments from inflation
One really cannot wish away the effects of inflation or prevent inflation. The only way to protect your investments from its debilitating impact is to ensure that they earn a return that is in excess of the persisting inflation rate. In other words, if inflation has been an average of say 8% over five years, your investment has to earn more than this on a post-tax basis. The post-tax, inflation-adjusted return is called as the real return. Let’s take an example to understand this. Let’s say your fixed deposit offers interest of 8% per annum. Now if you are in the highest tax bracket of 30%, tax on this interest rate will be 2.4% (30% of 8%). If inflation is at 6%, then your real return will be (-) 0.40% (8% minus 6% minus 2.4%). In other words, your real return is negative, which implies erosion in real value of your capital. Your investment has to earn a positive real return over time to preserve or enhance your wealth.

Conclusion: Whenever you invest money, you should account for inflation as a factor and always plan to make your investment returns inflation proof. You need to design your investment portfolio in such a way that your wealth grows in real terms, net of inflation. After all, the very purpose of investing is to increase your wealth right?

 
 

Buddy Jokes

JOKES

1. Manager to his subordinate- What are you doing here?
Subordinate - Executing your command, Sir.
Manager - But I haven't told you anything.
Subordinate- So I do nothing.

2. Ramesh to Shopkeeper - Yesterday I bought an energy saving bulb from your shop. When I returned home, the bulb was not working.
Shopkeeper - It would not, Sir. Because it saves energy.

3. A man asked God, "God, is it true that to you a billion years is like a second?"
God replied, "Yes."
He then asked, "God, is it true that to you a billion dollars is like a penny?"
God replied, "Yes"
He then asked, "God, can I have a penny?"
God replied, "Sure, just a second."

 

Buddy Quiz

Match the column

Column A Column B
1 Global economic growth forecasted as a. 50-50 per cent
2 India’s growth rate forecasted as b. Deposits, bonds and postal savings etc.
3 SREI Infrastructure Finance Limited and BNP Paribas Lease group has a joint venture of c. 3.1 per cent in 2015
4 Inflation d. 7.3 per cent in 2015
5 Fixed income securities include e Dents the real value of money over time

Answer: 1. (c); 2. (d); 3. (a); 4. (e); 5. (b).