@Leisure - Vol-18 | srei

@Leisure - Vol-18

Newsletter
 

Plastic surgery as an
economic indicator

Most plastic surgery is elective and non-essential. This means that the patient actually consents to a procedure to be performed merely because he or she thinks that this procedure is necessary. In developed as well as developing countries, health insurance rarely covers plastic surgery procedures. Most people thus have to pay for these procedures from their own pocket. Since such procedures are not exactly cheap, people only pay for them when they are flush with money.

Plastic surgery can be an interesting indicator of economic health as it has a direct link with discretionary spending. When people start spending money on tummy tucks, liposuction, facelifts and more, it means things are going well in the economy overall. According to the American Society of Plastic Surgeons, 13.1 million plastic surgery procedures were performed in 2010. If we look at the period 2008-2009 on the other hand, when the economy saw a recession, the demand for plastic surgery fell by 2 per cent.

There is another reason as well why plastic surgery may be a reliable economic indicator. Many people choose not to take days off from work when the economy is shaky. Since plastic surgery usually requires recovery time and people are hesitant to take days off during economic downturns, a return of the popularity of plastic surgery may indicate that the economy is sound. However, minimally invasive procedures like Botox and getting fillers put in may not suffer a huge dip in demand when the economy slips. These procedures are popular even in a bad economy. The lower price point of these types of plastic surgeries and the fact that there is not much of a recovery time required maybe a factor.

Going under the knife may thus be a good way of not only improving your looks but may also reveal a lot about the health and status of the overall economy. How reliable though are these non-governmental indicators is a matter of great speculation and academic research.

 
 

Sunny Days for the
Infrastructure Sector

Although India has been amongst the fastest-growing nations of the world, the country has not achieved its full growth potential because of poor infrastructure. The existing capacities are overburdened due to high population growth and rapid urbanization. National highways account for only 1.7 percent of the road network but carry about 40 percent of the total road traffic1. The country’s per capita power consumption is low at ~940 kWh, lagging far behind the similar indicator in China (~4,000 kWh) and developed nations (~15,000 kWh)2. The shortage of infrastructure is felt by everyone – from individuals to industries – from villagers to people in cities. According to the government, India needs to spend $1 trillion on infrastructure development over the next few years.

 

India’s new central government proposes to undertake infrastructure development as top priority. Coal mine and telecom spectrums were re-auctioned through a transparent bidding process, budgetary allocation for road construction has increased, and many schemes have been proposed for affordable housing. These ambitious plans require huge funding, which is a challenge. The government is planning innovative ways to fund infrastructure projects. It plans to remove hurdles in delayed projects in an attempt to encourage private investments. The finance ministry is encouraging wealth funds and pension funds to invest in infrastructure, while the RBI has introduced a 30-year bond, which will help the government fund long-term infrastructure projects.

The special focus on infrastructure development has started giving the desired results, although at a slow pace. Information from Ministry of Statistics and Programme Implementation (MoSPI) indicates improvement in production of power, steel, coal and cement in 2014-15 over the previous year. The other areas of growth include fertilizers, refinery, railway and port cargo, and renewable energy. These steps have helped grow the GDP to 7.3 percent in FY2014-15 from 6.9 percent in the previous year.

Srei Infrastructure is committed to support India’s growth. With around 25 years of experience in funding infrastructure projects, the company has gained deep understanding of the challenges in the infrastructure sector. Srei Infrastructure is actively looking for distressed investment opportunities in road and power projects, a move which will offer an exit option for existing players and attractive opportunities for experienced players.

1. Information from National Highway Authority of India (NHAI) www.nhai.org.
2. Source: www.livemint.com

 
 

Understanding bond duration and its effect on your investments

When you invest in a bond, there is always a risk that if the interest rate falls, the interest amount and the principal that you receive will have to be reinvested at a lower rate. Therefore, you must find out the reinvestment risk of a bond; you can do so by considering the bond’s duration.

About bond duration

Bond duration means the number of years it takes to recover the cost of investing in a bond; this takes into account the current value of the all interest and principal payments receivable in the future. We express the duration of a bond as number of years from the date of purchase.

Short versus long duration bonds

In principle, the higher the interest rate of a bond, the shorter the duration of a bond. This is because higher rate bonds have their costs recovered quicker.

On the other hand, in case of longer duration bonds you will recover your money over a longer period of time; also your income will be more affected by inflation.

Change in interest rate affect bond prices

A bond’s price falls by approximately an equal amount to the change in interest rate, times the duration of the bond. Here is an example for better understanding:

Let’s suppose Investor A invests in a 10-year bond (with a duration of 9 years) and the interest rate increases by 1 per cent, the bond price will fall by ~9 per cent.

While, Investor B invests in a 5-year bond (with a duration of 4 years) and the interest rate increases by 1 per cent, the bond price will fall by ~4 per cent.

Implications of bond duration

Duration has the following implications:

  • Risk: The longer the duration, the higher the reinvestment risk.
  • Volatility: Higher the duration, the more chances of price change in bonds due to interest rate movements.
  • Returns: Higher the duration, the more chance of being affected by inflation over time. Bonds offering higher interest rate are usually of lower duration and vice versa.

Conclusion: When you pick a bond, don’t only look at the credit quality but also the duration to understand the underlying risks.

 
 

Buddy Jokes

1. “It’s easy to meet expenses – everywhere we go, there they are there.” – Anonymous

2. A businessman was interviewing job applications for the position of a manager. He devised a test for choosing the most suitable candidate. He asked each applicant this question, "What is two plus two?"
First applicant, a social worker, replied “I’m not quite certain how it’s related to the job, but I’m glad we have an opportunity to discuss it”
Second applicant was an engineer; He pulled out a slide rule and log tables, and came up with the answer "Somewhere between 3.99 and 4.01"
Third applicant was an attorney; stated that "In the case of Khanna vs. the Department of Excise, two plus two was proven to be four."
Finally, the businessman interviewed the last applicant, an accountant. The accountant got up from his chair, went over to the door, shut it, came back and sat down. Leaning across the desk, he whispered, "How much do you want it to be?"
He got the job.

3. Pessimist: The glass is half empty.
Optimist: The glass is half full.
Corporate Downsizing Consultant: It seems like we have twice as much glass as we need.

4. "There is a very easy way to return from a casino with a small fortune: go there with a large one” – Jack Yelton.

 
 

Buddy Quiz

True or False

1. The longer the duration, the lower is the reinvestment risk in a bond.

2. Higher the coupon rate of a bond, the longer is the duration.

3. India’s per capita power consumption is around one-fourth of China’s per capita power consumption.

4. In bond investment, reinvestment risk arises because of potential changes in interest rates in the future.

5. National highways carry ~40 percent of the total road traffic in India.

Answers: 1. False; 2. False; 3. True; 4. True; 5. True.