By Kunal Sanghvi
In this times of COVID-19 pandemic which has led to one of the biggest crises in many decades, when future is uncertain and when one of the big slowdown & recessionary trends ever seen in our lifetimes is going to be experienced what does economy and markets hold for us has become pertinent question in minds of everyone. These are times when interest rates are low on account of excess liquidity but undeployed monies, labour is distorted and Chinese competition is seeing an psychological beating on account of counter reactive sentiments.
it becomes essential to envision the future and look at how the economic and market scenario will span out, how will investments and markets behave, what will happen to earnings and it’s impact on valuation. There are enough and more questions to decide what to do with the cash, what projects to deploy in, which sectors to get in to and what will be drivers of economy and businesses going forward.
GDP is expected to take a big dip for FY20-21 on account of lockdown. Fall of more than 4% is expected in this financial year. Interest rates have seen constant dip and now with so much stimulus by government will continue to remain low
Earnings of companies will take one time adjustments for dip on account of lockdown and this will need to be factored in valuations and pricing in markets. Demand supply mismatch will lead to distortion in pricing of goods and services whereby at times pricing will go low due to excess supply but most of the time it will be excess demand due to logistical and social distancing issues during lockdown and later which will lead to spike demand and prices.
Everyone is looking this as crises which should not go waste and hence are scouting opportunities. Government is no exception and has embedded most of their fiscal and stimulus measures which they were anyway considering under the package of whopping Rs. 20 Lakh crores. This is like old wine in new bottle but there is nothing wrong to it. But government will need specialists to direct the objectives and leaders from big organisations to take lead to capitalise on this distribution.
In wake of this Top 5 insights for markets and economy
1. It is prudent to look for specific companies and sector rather than benchmark indices to pick your next opportunity. Everyone has become a fan of Pharma and healthcare. I believe it’s a short term and one to two years story till the time this situation settles or till tested vaccine is around. Need to factor in advanced stages of multiple clinical trails across the globe.
2. Opportunity for next one to two decade and not one to two years is what will excite investors at this stage. I believe renewable energy is going to make a big transformation. The fact that competitiveness in pricing has already been experienced by renewable power companies as against traditional and thermal based companies itself sets the tone for complete overhaul. With lot of benefits related to environment and ease I see an increasing demand of renewable energy over next 2 decades replacing thermal, coal based and traditional energy facilities.
3. With intense and competitive pricing in telecom sector after reliance Jio entered the Market, High demand with increased user base was experienced leading to make the industry realise that combined capacity of all players is lesser than what is demanded by customers leading to lower bandwidth, call drops etc. Telecom has and will continue to bring paradigm shift in the way in which we operate with rising demand and average revenue per user ( ARPU ). Accordingly with increased pricing lately in last one year and no negative impact of COVID-19 this sector will continue to grow. Work from home is only going to aggravate the need of this services.
4. Lending companies will see the biggest dent and therefore should be traded cautiously especially in the short term. Defaults by other companies in terms of repayment of debt to banks and other financial institutions will question survival of this companies.
5. Indian manufacturers are going to face severe heat to address the expectation bubble of demand as arising out of companies China flight, wherein without similar or more advanced technology than China & related support from government, it will be difficult to replicate production capabilities similar to China and this will lead to plight back to China for sourcing of goods. Again time required to build this facilities and capture the markets from Chinese competitors will be of essence. Economy will see huge volatility and digital transformation and therefore companies adopting end to end digital with similar cost competitiveness as China will be amongst few to replace China’s supply side dominance.
While there was more of economic and commercial activity lockdown causing fiscal pain, its now going to relief on that front as we unlock but the risk of human life will increase. In true sense these are complimentary and inter related wherein if adequate measures and innovative steps are executed well to open the economic activity without seeing community spread and loss of human life then we may not see phase 2 of lockdown which will be the biggest success to get economy and Markets back on track.
Mr. Kunal Sanghvi is a Capital Markets expert, Finance & Strategy specialist and led various leadership & senior management roles with large organisations and exchanges.
