Aftermath of Covid-19 surge and financial health

A pall of gloom has descended on the country and it is difficult to escape it especially if you are in one of the metros of Delhi, Mumbai, Bangalore where information is free flowing. As decades of underinvestment in healthcare come to fruition, the effect may be felt disproportionately by the smaller and more rural segments (perhaps even unorganised) of the economy.

While it is abundantly clear that we were not prepared, as the dust settles, the primary question can be, what next? And how does one shore up their financial health in addition to physical and mental health? To delve into where the populace and indeed the economy is headed, we need to look at the 2020-21 annual report of the Ministry of MSME which pegs the number of such organisations at around 6.3 crore, which are split a third each between manufacturing, Trading and Other Services (for some reason the Ministry has another category called ‘electricity’, but the number is small so ignored).

The dominos fall as follows: Lockdowns will lead to loss of employment. As some businesses are classified as non-essential, their cashflows stop as they cannot deliver goods or services simply because of travel restrictions. With balance sheets already stretched thin from a year of slowdown, a number of these enterprises could suffer loss of business and employment.

CORONAVIRUS SPECIAL COVERAGE ONLY ON DH

As these economic realities start to bite, the flow of cash is also disrupted - payments to vendors (and financiers including banks) get delayed. This has been evidenced in the crashing banking index (the proverbial canary in the coal mine) coinciding heavily with news flow and figures on pandemic-related disruption. This in turn, leads to similar shrinking employment and profits at these organisations which may not be as small as the MSME but larger ones like large banks.

But not all businesses are affected equally – the larger ones which are well capitalised will be better placed to those who do not have access to cash to weather the slow down or are not able to raise fresh funds.

Similarly, not all industries are likely to be affected equally during this ‘readjustment phase’ and some are likely to thrive. The year-long pandemic work environment has shown that, for the urban population, work from home is possible and is here to stay. Anecdotal evidence like the CEO of the largest stockbroker in the country has put out a recruitment requirement for permanent offsite customer support. But larger than that, for example, is digital education.

From the small home-grown Pride School in Nagpur to the biggest International Schools in Bangalore, all have shifted to a model of a ‘virtual’ school. As inadequate healthcare infrastructure becomes painfully real, it opens opportunities for investment which, for example vaccines, can see a handsome return for the next several years.

In the interest of our financial health, therefore, there needs to be a relook at the standard 60:40 debt equity portfolio and one should find a way to lower the weightage of those investments that may possibly not perform as well.

One way to do that is stock selection (from the example, healthcare, education etc.). The other is to pick a set of broad-based Index ETFs which automatically reward size and growth (withing the index) along with including other countries which come out of lockdowns earlier than India. That said, consulting with a licensed professional is desirable as would using a platform to allocate, execute, manage, and track the overall portfolio.

As always, stay safe, wear a mask (or two, should you need to be out and about).