Undue influence

The following is a sad commentary on the health and wellness of the nation. India is the 'diabetes capital of the world', according to a study by the Indian Council of Medical Research. Published in June 2023, in The Lancet Diabetes and Endocrinology?journal, the study conducted by the Indian Council of Medical Research–India Diabetes (ICMR-INDIAB) shows that the country now has 101 million diabetics, with a further 136 million pre-diabetic individuals in need of prevention.

The ICMR study says that the number of diabetic cases has increased by 44% in four years from 70 million affected people in 2019. It is said to be the largest survey on diabetes and other metabolic non-communicable diseases undertaken in India. Conducted between October 18, 2008, and December 17,2020, the researchers analysed data of 1,13,043 individuals, out of which more than 75,000 people were from rural areas. The study says that 15.3% of the population (at least 136 million people) is pre-diabetic - an individual who has higher-than-normal blood sugar levels but is not high enough to be considered a diabetic. A pre-diabetic is said to fall in the high-risk group of developing diabetes.

Among the states, Goa showed the highest prevalence (26.4%) of type 1 and type 2 diabetes cases, Puducherry was a close second with 26.3% and Kerala took the third position with 25.5% of cases. Uttar Pradesh has recorded the lowest number (4.8%) of diabetic prevalence but had around 18% pre-diabetics compared to the national average of 15.3%. The study found that states like UP, Madhya Pradesh, Bihar and Arunachal Pradesh which showed lower prevalence had higher chances of diabetes explosion over the next few years.

Diabetes, in brief

Diabetes is a chronic, non-communicable disease that occurs either when the pancreas does not produce enough insulin or when the body cannot effectively use the insulin it produces. Insulin is a hormone that regulates blood glucose. Over time, diabetes can damage blood vessels in the heart, eyes, kidneys and nerves. People with diabetes have a higher risk of health problems including heart attack, stroke and kidney failure. Diabetes can cause permanent vision loss by damaging blood vessels in the eyes.

The undue influence diabetes has on the Indian gene

The current exponential rise of diabetes in India points to the influence of lifestyle changes. The influence of changes in dietary patterns, physical inactivity, and increased body weight especially abdominal fat are some of the primary reasons for increased prevalence.

Ethnically, Indians seem to be more prone to diabetes as compared to Caucasians. Various studies point to the fact that the Indian gene has an increased predilection to diabetes which could well be due to a greater genetic disposition to diabetes. Indians also have a greater degree of insulin resistance which means our cells do not respond to the hormone insulin as much as is required. When compared to Europeans our blood insulin levels also tend to rise higher and more persistently when we eat carbohydrates.

Influence

While the undue influence or predisposition diabetes has on the Indian gene cannot be wished away, in other aspects of life, influences may not be so obvious. Take for example influences in financial markets, more specifically the indirect influence of the 10-year G-Sec yield on the valuation of risk in the stock market.

How value investors may be influenced by the 10-year G-Sec yield

As you may be aware there are broadly two types of investors in the stock market – Value investors and Growth investors. Value investing is about finding stocks that are undervalued by the market. Growth investing is about finding stocks that have the potential to deliver better-than-average returns. Legendry investors like Warren Buffet are considered as value investors. Here are some points on how value investors may be influenced by the risk-free rate (i.e. the yield of the 10-year G-Sec yield), while making investment decisions:

1. Opportunity Cost: The 10-year G-Sec yield represents the return an investor can earn from a risk-free investment over a 10-year period. When the 10-year G-Sec yield is relatively high, it can create a higher opportunity cost for investing in stocks. Value investors look for stocks that are undervalued and offer a margin of safety. They may compare the potential returns from stocks to the risk-free rate to assess whether the investment opportunity is attractive.
2. Valuation of Cash Flows: Value investors analyze the future cash flows of a business to determine its intrinsic value. The 10-year G-Sec yield can influence the discount rate that applies to those cash flows. If the 10-year G-Sec yield is low, the discount rate used to calculate the present value of future cash flows may also be low, potentially resulting in higher valuations for stocks relative to bonds.
3. Economic Conditions: The 10-year G-Sec yield is influenced by economic conditions and interest rate movements. Value investors consider the macroeconomic environment as it impacts the overall investment landscape. Changes in the 10-year G-Sec yield can indicate shifts in market sentiment, inflation expectations, or monetary policy decisions, which can have implications for businesses and the stock market as a whole.
4. Comparative Analysis: Value investors often compare the earnings yield of stocks to the yield on G-sec. The earnings yield is the inverse of the price-to-earnings (P/E) ratio, and it indicates the earnings generated by a stock relative to its price. By comparing the earnings yield of stocks to the yield on G-sec, a value investor can assess whether stocks are relatively attractive or overvalued compared to bonds.

While the 10-year G-Sec yield is just one of the influences considered by value investors, it can provide insights into the broader economic landscape and market conditions, helping investors assess the relative attractiveness of stocks compared to other investment options, including bonds. After all, success in investing is all about better management of risk, and cognizance of the risk-free rate helps.

Influences whether undue or otherwise cannot be wished away, especially when it concerns our health or investments; taking cognizance of these influences is a better strategy to manage them. Understanding influences can give us a better understanding of their impact, it can help us calibrate the risks we face. Better understanding of influences leads to better actions that can improve our future.

Source: Metabolic non-communicable disease health report of India: the ICMR-INDIAB national cross-sectional study (ICMR-INDIAB-17) - The Lancet Diabetes & Endocrinology

Author: Ashish Joseph George, MMS, CFP. The views shared in this article are my personal views and don’t reflect the views of any organization. This is not an investment advice