With ‘unlock’ seeding in, we are indeed stepping foot into a world that we are not only uncertain of but also one that has the power to catch us unawares at any given point. One of the biggest challenges of the COVID-19 pandemic is the lack of comprehensive understanding and knowledge of its nature. However, it has made us realize that it is not the most intelligent or the strongest who will endure till the end, but the ones who adapt to change quickly.
The Indian economy was slow even before the onset of the pandemic. Earnings were low, increasing defaults, and ongoing corporate loan repayment issue -it was messy to say the least! COVID-19 added to those troubles and we saw an immediate knee-jerk reaction with the lockdown being imposed. Earnings went from low to miserable, rural demand fell, and the atmosphere was chaotic. Now as we step from ‘chaos’ to ‘unknown’, recovery will depend on adapting to the newer needs, investing in technology and being able to capitalize on the accelerating trends, especially in terms of the right investments.
Despite the tight fiscal situation, the government has provided us with the stimulus to revive the economy. Financial dispensations, moratoriums, and credit guarantee schemes are bringing back some confidence in the economy. The inherent goal will be to recover revenue gradually as the crisis abates. As organizations rethink and realign themselves, there is opportunity to embrace technology & innovation to meet business goals. The focus will shift towards building agile organizations that have managed to digitize the entire value chain. While reconfiguring business models, significance will be laid on acceptance of technology and the emergence of fresh new market cycles.
The same principle can be applied in terms of investments as well. Investors who will determine the right kind of avenues that are quality backed will yield higher returns through ‘rupee cost averaging’. The current market action is reflective of the economic environment with significant uncertainties. Markets have witnessed some astonishing highs and lows, leaving investors in throes of confusion and uncertainty. While market valuations have reached high, we need to look at it from the perspective of price & earnings. The reality is that the COVID-19 situation has made short-term earnings estimates uncertain. As we get on the ‘hope’ bandwagon, it is imperative that we look from the lens of a long term and meticulously planned growth strategy that is aided by quality investments and the ability to readjust the risk potential. As the economy opens up and economic activity returns to normal, markets will offer plenty of opportunities for wealth creation.
As an economy, we continue to be not only growth but also value focused. The market will reward fast-growing companies with good multiples, not slow growth ones. While recovery is imminent, it is dependent on the revival of the capital cycle. There are some sectors that have been resilient (like pharma, consumer, IT etc.) that may expect quicker recoveries due to high demand and the better risk management systems. That is not to say that the sectors which witnessed a near complete collapse like hospitality, travel, media & entertainment will not see an uptick, eventually. Ours is a consumer-driven economy, and sooner or later, those businesses that are able to calibrate themselves to the post pandemic world will be rewarded.
The next phase of the economic cycle will probably be different from what we can expect. While actual NPA creation will only be clear over the next couple of quarters, the scale would be manageable as in the long run, these companies would ultimately drive growth in the economy. In the last few months, no one in their wildest dream would have imagined that we would be facing a global pandemic and an economic depression all rolled into one. The true magnitude of the loss remains to be determined and navigating growth will certainly not be a piece of cake. Only those individuals, businesses, and economies alike that are able to adapt and accept the change, will emerge stronger.
The pandemic has probably given a whole new meaning to the axiom ‘Change is the only constant’!
The trend that we witness is of ‘Global Investing’. Investors are willing to invest in global themes as they want to invest in top companies across the world, thereby diversifying their portfolio further and avoiding single country risks. Apart from this, there is a gradual increase in ESG investing. As investors want to earn returns on their investment, on the other hand, they want to be more responsible towards environment & society. In simple terms we can call it as ‘Risk Adjusted Responsible Returns’.
Investing in quality product is a discipline that will help in wealth creation, most times even during market stress. A positive outlook from the economy is expected by the latter half of next year, but investors need to utilize the pandemic as an opportunity to create resilient portfolios, by removing frictions that have hampered growth in the past and showcasing a strong bias towards quality-backed investment avenues.