We are now in the second half of a year, which to most people cannot be compared to any time that they have experienced in their lives. Working from home, very limited travel (or none for most) and in some ways participating in a globalized world virtually, extending the use of technology. Starting with the beginning of the year, “Corona” has taken on a momentum affecting the lives across countries and economies globally.
What will be the new normal once a vaccine and treatment is discovered is what the investor and the investment community is trying to figure out. If one can see ahead and then act on it by investing in potential future trends, then the investments can hit a home run! If one were clairvoyant then it would be easy, since most of us are not, we’ll have to rely on the age old way of “analysis”, trying to see data and trends and extrapolating them. There will be some right, some wrong and ultimately action along with wisdom is what is required (I have most certainly borrowed this phrase as some of you would recognize). While the world is watching, talking and trying to predict the future, it is quite interesting to see what has been happening in the capital markets both in India and outside.
What Pandemic? That was earlier! That’s what the markets seem to be saying. Since reaching the lows in March when “everything was uncertain”, the broader markets appear to have recovered smartly. Looking at some of the leading indices, you may think “Why didn’t I invest more in equities in March – April?”.
The mindset of impending doom that prevailed in March - April has given way to thoughts that “this too shall pass”. Looking at the performance of some of indices you will see the magnitude of the recovery since the lows of March.
While we can discuss the components and the stocks driving the indices, the point here is that the equity markets are up! So what are some of the investors seeing that some are not?
The question now is should investors look ahead of the present environment and invest for the future (this is what equity markets are about!). We all have a choice - stand on the sidelines, watch what is happening and invest thereafter, or take a call on some of the trends and jump in. While some of us think about what to do, there
is always an interim solution – Reading and Analysis! So here goes some of the points to ponder.
For India, there may be an interesting path, with some of the sectors such as outsourcing and IT services seeing positive outcomes. Technology and adapting to the newer tools has never been more important for corporations than now. If there is one thing that the pandemic has shown businesses, it is that work-from-home seems to have worked in several segments. So if it is work from home, then why not another geography? Will Indian outsourcing and service providers capitalise on this and drive growth?
Pharmaceuticals, which was to a large extent in the background in the bull run of recent years in India is witnessing a revival. It will be interesting to see if Indian pharmaceutical companies are able to land major licensing deals and significantly grow in the next few years. If people in the world fall sick, then it may be good for pharma! Markets seem to be seeing this by driving up share prices of several pharma companies so will the performance continue?
India’s rural economy appears to be holding up well to date. Demand for tractor and demand for fertilizers in the last few months has been strong. Approximately 66% of the India’s population live in rural India which is a significant number. While agriculture may do well, it contributes 16% to our domestic economy. If there is limited spreading of Covid to rural and semi rural areas, most of
the rural economy may hold the line and may not really be affected severely due to the pandemic.
One of the most debated sectors and one that touches most people in some way or the other is the banking and non-banking financial sectors. Based on data published by the World Bank, private sector credit as a percentage of India’s GDP was 50% in 2019. Credit growth will be imperative for our economy to get back to higher growth but given the risk aversion prevailing at present at the lenders, it may open up new opportunities to some of the more aggressive players in the segment (who ofcourse need to be well capitalized!).
Will we see a new set of players lending at this time and the more established companies taking a more reserved stand on the side lines? It is not only the well capitalised banks / NBFCs but the ones that have the willingness to see the larger picture and act by lending to businesses at this juncture that will forge ahead in the years to come. So will this be a newer set of companies other than the established ones?
There are several more sectors and trends and I have picked only a few of them this time. For every challenge, opportunity emerges and this time too it is likely that a few sectors / businesses will see themselves emerging stronger, larger and more successful. For an investor, it is very simple – just pick the right ones! On this note, I will sign off and let you put on your thinking hats.
(The writer is Director of Lokkur Investment Advisors Private Limited)