‘Covid.19,’
has triggered a crisis of mammoth proportion. It has given a smashing impact on
the lives and livelihoods, with economies around the globe reeling under
turmoil, facing collateral damages of every nature, much worse and fearful than
that of financial crisis of 2008. Lurking danger of global recession is looming
large.
The
prices of even ‘True Blue’ stocks across industries, around the world have been
battered black and blue. Global markets have shed around US $15 trillion of
wealth. Stock indices of prominence have faced up to 30% fall; situation of
Indian Indices have been no different- Dalal Street witnessed the blood bath
more than once since March 2020, upcoming Burger King India- withdrawing their
Initial Public Offerings and SBI Cards -saw listless listings.
We are in
the firm grip of bears; for next 12 month for sure! New York Stock Exchange
opened without its trading floor for the first time in 228 years on March 23rd,
after two people tested positive for Covid-19 on the trading floor. The fierce
pace and extremity of correction has panicked investors, leading to the loss of
confidence in the markets that could not be revived despite multiple rate cuts
by the Federal Reserve. Countries are staring at sharp cuts in their GDP growth
forecasts, with loss of millions of jobs in vogue.
However, times
like these offer investors a rare opportunity to invest in assets at very
attractive prices. As for the economies, they would defy all precedents and emerge
stronger to deal with such ‘black swan’ events in the future.
The market
volatility can be worrisome in the short term, but long-term investors need not
develop cold feet. Global and Indian equity markets had rallied out of proportion,
which is now getting corrected due to Covid-19 pandemic. However, going by the
experiences of past out-break of viruses like Swine Flu and Zika, we have seen
that such epidemics are temporary phenomena and when they are over, markets see
unprecedented rise. Expect markets to gain traction once COVID.19 crisis is
over.
Markets are
cyclic; one should use this slump as an opportunity to invest for 36 month, in
front-line stocks, which are fundamentally strong. We know for the fact that,
quality companies will create wealth, as they have enough resilience to bounce
back after a sharp decline.
However, it
would be good to stay away from direct stock investing; if you don’t have grip
on the subject and access to high grade research reports. Instead one can take
Mutual Fund route for investing. Certain AAA rated Corporate FDs can also offer
good options if one is comfortable with fixed rate of returns. Besides, get
your selves sufficiently covered with adequate health and life insurance.
Market
volatility helps build wealth over a period of time. Therefore, investors should
continue disciplined investing through systematic investment plans (SIPs) and
stick to their asset allocation. Those who have surplus money should invest
more. However, do not make the mistake
of buying low priced stocks or cyclical stocks.
The major impact is expected to be on Hardware business,
the Software and Services businesses are also expected to slow down. However,
adoption of collaborative applications, security solutions, Big Data and AI are
set to increase in the times ahead. IT solution providers should test run some
concepts like enabling –‘work from any place, any time’, as they may have
embedded business opportunities for the future.
In the long
run, when things are under control, markets would recover and the same
businesses would be fairly priced again. If we consider everyday utilities,
despite a slowdown we would continue to consume toothpaste, soaps, tea and
other grocery items. This is exactly where companies like Hindustan
Unilever, D’Mart and Colgate come into the picture since, they
would continue to create wealth as they have been in the past. So, investing in the stocks of good I.T,
FMCG, Pharma, Insurance companies can be a sensible decision.
India’s already decelerating economy is
now staring at disruption as the country is locked down, though government of
India and the RBI have taken slew of measures to combat COVID-19 impact.
India’s services sector
comprising of retail, aviation and entertainment, have been severely hit.
The manufacturing sector is also suffering, casting serious
concerns about the medium term viability of many businesses, including the
MSMEs. The infrastructure sector is also in
turmoil. Fear
is that these developments may lead leveraged companies to default and create
non-performing assets. The current situation has also led
to significant volatility in asset prices, especially for
financial assets including publicly traded debt and equity.
In the current situation companies
should assess cash balances to meet operational expenses, reassess business
strategies in light of post-COVID scenario, necessary adjustments to the
capital structure factoring in lower earnings, and diversify funding sources.
The current situation would leave deep
impact on the economy due to it’s high intensity and long duration. It may
alter the business landscape through changing trade flows, asset prices and
consumption patterns, impacting all stake holders. The need of the hour is to
put in place a robust action plan that addresses potential impact, from
short-term cash flow concerns to longer term adjustments of financial
statements.
At the level of nation, the void
created by disruption in global supplies can be filled by India. Global supply
chain network has totally collapsed. The worst-hit sectors include technology
and auto. China is a major exporter, creating significant reliance on them, is
hurting the global economy and manufacturing of many companies have almost
halted.
The movement of companies from China to
other nations should be lapped up by India – which is in quest of FDI. The
expansion of the manufacturing hub linked with global supply chains would
create large-scale employment.
The outbreak of corona virus provides a
sizeable opportunity for India to follow an export-driven model. However,
necessary tools, pool of skilled labor, network of suppliers, easing the
logistics process, better business environment, doing away with administrative
bottlenecks, more incentives, robust infrastructure-power, efficient port and
roads would be the ask to redeem the opportunities.
Time is the
best healer. We don't know if this crisis is going to get worse, and we never
know whether the panic is going to be the once-in-a-generation kind, but if we
were to take a leap of faith looking at how China has recovered; we know that,
we shall stand test of the time to emerge as winner.
Ajit Singh
Comments
Post a Comment