Now, if you step out of your house (trust me, you’re privileged if you can), you don’t just have to carry your keys and mobile phone. Even the face mask! Over the past few weeks, the world has changed a lot – what we eat, how we live, how we communicate, how we work and many more. This time the change is not due to technological disruption, but a global pandemic that has just put the entire world at a halt.
Just a few months back, nobody in this world would have ever imagined that social distancing, face masks and work from home would become the new norm. But here it is, very much as a reality!
If you look at the past, any such extraordinary situation has had some lasting impact. For example, World War II propelled massive infrastructure spending in the otherwise industrialized world, and the dotcom bubble made people more cautious while investing in tech stocks which were otherwise considered as a goldmine. And, the Financial Crisis of 2008 tightened more regulation in credit derivatives and empowered more accountabilities to Central Banks.
Talking about these abiding times, what would be the consequences as the stock market this time? More spending on healthcare research & development? More spending on consumption? More spending on infrastructure? To answer this question, it will probably require more time. Few changes would be due to the reforms initiated by the government; few could be driven by companies while individuals would voluntarily transform few.
“As investors, that’s where your focus should be – The next opportunity that can ride out the next wave of transformation.”
We at Research & Ranking take a deep dive into some of the possibilities post Covid-19 world. As I said before, the world may metamorphose dramatically and as investors, you should have your eyes open on how the recovery pans out and build the best Opportunity Portfolio with your investible surplus.
Before coming to the impact on equity investing let’s first take a look at the probable impact on general things.
The way we work
On any typical day, the local trains in metro cities are full to the brim during the peak hours with commuters jostling for space and many even falling off on tracks in overcrowded trains.
The Covid 19 crisis has introduced the culture of work from home to several sectors. While on hand, it reduces the travel-related stress for employees, it also helps in improving work-life balance as an individual can avail more leisure time otherwise spent on travel. Keeping this in mind, work from home may become a new standard in the world post-Covid 19.
A dawn of more hypochondria society?
Nobody could have predicted or imagined a suspended animation (global lockdown) due to a pandemic. This looks like an emergency, something of a war sort.
Studies have shown that the number of fatalities due to Covid 19 is high among those with diabetes, hypertension and cardiovascular diseases. This has proved as an eye-opener to many who have been procrastinating regular exercise and practising deleterious life until now and relying on pills. So, post-Covid 19 many who have now started exercising and adopting a healthy lifestyle would continue to do so, resulting in better health.
The other effects could be educating kids about cleanliness and medicines, more ventilators per million population, more full-fledged testing centres, more investment in healthcare research & development facilities along with more focus on enhanced lifestyle.
The longer this lockdown would last, the more lasting impression it would be on healthcare sector (including gyms, diagnostics centre, etc.). With time, we expect government spending in this sector to increase.
Digital India – to turn reality?
Why we think Digital India is nearer than we imagined:
- E-shopping: The world has learned - most meetings may not demand physical presence, and more meetings and gathering can become virtual. With regular travel coming to a standstill, more and more people realize the need for doing away the need for physical travel by switching over to digital meetings. Whether it is a personal or a professional meet, technology can help bridge the gap, and this may become the new norm for many in the world post-Covid 19.
- Digital transformation: Due to more virtualization, the cascading effect would be seen on better networks, processors, cybersecurity to ride the next wave of digital transformation.
- Cashless society: Secondly, Virtual shopping may escalate, and one implication could be a rise in digital payments. Our honourable PM has envisioned India as a ‘Cashless Society’, and with e-shopping accelerating, this may turn a reality very soon.
Sanitization – will be taken more seriously
In the past various attempts by government agencies to curb spitting in public, have failed miserably. However, now with growing awareness about the dangers of spread in Covid 19 through spit, spitting in public may soon become a thing of the past in the post-Covid 19 world. Also, people would become more aware about sanitization, coughing etiquettes and hygiene standards.
The way we invest in equity or elsewhere
Coming to the investment part, many investors especially new investors, hit hard by the current market correction, will probably bid goodbye to the market forever, shifting to safer avenues like FDs, bonds or postal deposits. But in the long run, when the curves start flattening, and recovery is in speed, they will lose out on their chance of wealth creation by investing in a high-quality equity portfolio.
As out of 1.3 bn population, millennials form close to 35% of the country’s population. With the uncertainty prevailing, many have understood the importance of savings for the future or contingency. Considering that even if 10% millennials start saving more and investing, it can have a significant impact. Now what asset classes would attract their savings, we don’t know. What we know is, stock markets have overcome all such extraordinary situations in the past, and have still delivered a CAGR return between 12-14% over the long run.
The good news for investors is – there are many good companies available at comfortable prices. If they turn this quarantine period into action time for investments, then by the time next extraordinary occurs (hopefully not before 10 years), they would be better prepared to deal with uncertainty. However, the sad part is, equity investors need to exercise greater caution about their investments in a post-Covid 19 world. Many companies will perish. In contrast, those companies which are innovative and quick to adopt change and coincide with the economy’s progress will outperform.
Some companies will perish, not because they are bad companies or they are financially weak, but because they are operating in an industry which has been severely affected. For example, airlines and hospitality industry have taken the worst hit currently.
On the other hand, there will be a boost for investments in the healthcare and pharma sector.
The auto sector, which recorded its worst performance in several decades in April 2020, will take quite some time to recover.
A boost for domestic production
The current crisis has exposed the vulnerability of global value chains. It has proved that countries can no longer depend on supply chains in other parts of the world because, in time of such difficulties, those countries would consider their requirements on priority and then cater to others.
So, it is highly anticipated that in a post-Covid 19 world, there may be massive efforts to rework value chains which can be a good boost for domestic production in India. USA has also been talking about shifting entire production lines from China to more USA-friendly countries, including India.
To capitalize on this, India has already started developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China. As and when the shift of supply chains happens, many companies in India are likely to gain immensely.
So, is it time to rebalance your equity portfolio?
The answer to this could be a yes or a no. Yes, if you have invested in companies which are fundamentally and financially weak.
No, if you have invested in fundamentally sound companies with consistent earnings growth and future growth prospects. Don’t forget, companies that have enough cash on the balance sheet, would survive and become more powerful in the years ahead.
Many fundamentally weak infrastructure companies which had run-up significantly during the 2004-2008 market rally had to bite the dust post the global financial crisis of 2008, and some have never recovered till date.
The world post-Covid 19 will be a lot different. Those companies which make our lives better, foster progress in the economy irrespective of which sector they belong to, will be the best outperformers over the next few years.
Apart from a few red zones, India has been able to combat coronavirus much better than the other countries. At this point of time, the utmost importance is to take care of our well-being and invest to prepare for the future black swan event.
Humans have overcome and triumphed after each crisis. Yes, we shattered for some time, but gained our footing and emerged stronger. This time also, we would repeat the same!