My long term 22

 As I was testing in value investing, I do follow a mix of Benjamin Graham, Warren Buffet and Peter Lynch and have created a strategy for long term nature in order to grow wealth.

Even though by value investing wherein one usually looks after low PE ratio and low PBV, I look at potential entry barriers and other things while searching for a good company.

Though the situation is altogether different in developing countries just inclusion of value investing will lose you money in India as well as different developing countries. Thus there are many things wherein primarily going from top to bottom approach I look at the global market scenario and understand things from a perspective and coming to India, and than sectoral wise scenarios and the policy implications as well as the customer current and latent demands and try to assume the scenario changes that can happen in the country and how will it impact the companies over long term.

So the companies which I have added in my portfolio are the list of 22 companies I consider for longer term period wherein I look at fixed income type as well as growing companies.

1. Tata Chemicals

2. GNFC

3. REC Ltd

4. Hindustan Copper

5. Adani Ports

6. Biocon

7. ICICI Bank

8. ITC Ltd

9. Exide Industries

10. ICICI Prudential

11. Indusind Bank

12. LIC Housing Finance

13. Delta Corp

14. Cholamandalam Investment and Financial corporation

15. TVS Motors

16. Grasim Industries

17. Wipro

18. Relaxo Footwear

19. GM Breweries

20. JSW Steel

21. Adani Green

While all these companies are considering few factors mentioned below

• Barriers to entry

• Capital allocation

• Global shift in Demand and current supply

• Long term change in consumption pattern

• Investing in sectors which I understand and not going broad

• Past 10 years performance

• Market share of the company

I believe and do choose companies by giving certain premium in the market and try to look whether the companies are overvalued or under valued and only then invest in companies which I get at a bargain value or fair price.

I mostly avoid cyclicals because I find it difficult to understand the consumption pattern of the consumers. Having multiple festivals it is difficult for me to gauge the cyclicals in the market.

Investment for future generations

Yes, it has been a long time as I have posted something, I was recently tested positive for corona virus but now I am fit and fine as used to be. A sincere request to all those reading is to take care as much as possible.

So I have been peeping into the history to understand the human behavior of herd mentality in the markets, for as of now I would be first explaining the current market scenario and to make it easier as to why and how the markets are performing globally.

Current Scenario

In the current scenario what I have observed that mostly the markets are driven by institutional investors and then come the retail investors wherein both the types of investors follow herd mentality. What I mean to tell is just looking at the prices and the P/E ratio of the current markets is not called investing but understanding the business as well as knowing the repercussions of the decisions as well as weight-age given by the majority of the investors to particular sectors, individual persons as well as the government focus for the next 5 years.

As we see that global market was in shock and is still very volatile, the markets think of the impact of 2 years ahead of what we are doing now, for e.g: Trump has been tested positive for corona virus and is being treated, just the information of this has given multiple repercussions.

So the question is how does this things work, now let me explain that as Trump is a Republican, the Republicans have certain agendas, as it is 4 year tenure in USA let us consider 4 years agenda. Here, the government would have focused on some particular sectors such as healthcare, infrastructure, another bilateral agreements with countries etc. All these things can be impacted of something happens to the president. Similarly businesses are the main thing in the markets.

Now, since long time or we can say traditionally people have invested mostly in 60% of their funds in equity and the remaining 40% in bond markets and other alternative funds such as real estate and hedge funds, though still it is going on and my research and observations gave me conclusion that most of the investors buy when the Asset prices go UP and sell when the Asset prices go DOWN.

This is the worst mistake investors can do.

What to do?

While there are various methods, I would say principles that needs to be followed as the financial markets have changed considerably since years have passed and all these bubbles which were formed in 2000, 2008 financial crisis were generally because of the incentive schemes to mutual fund managers to sell more products at no matter what price and than these bubbles created liquidity problem in the markets.

Investing in Bonds:

Investing in bonds is generally considered safer option and are generally risk free, while the interest rate is a thing that needs to be checked upon, one can look at Treasury bond yields for 10 years as they are considered risk free bonds and check the GDP growth ratio. Even though GDP ratio is not a proper comparison of the bond market it is much better to know how the sectors are performing.

Investing in bonds are also of two types wherein the first I told are government bonds which are risk free, the second are corporate bonds which offer premium interest for the risk of default.

1. Things that are to be considered while investing in corporate bonds are, higher interest rate does not guarantee that the bonds will not default. It is better to consider the seniority of the bond rate and then think of investing
2. Investing in senior level bonds is always desirable even though interest might be bit less but considering situations such as the corona it would be much easier to find senior bonds at higher interest rates.

These are the two main factors while considering the future market, I would still opt for medium term bonds such as 5-7 years rather than 10 year and more, because there would be interest rate as well as other factors which would be changing in the near future.

Investing in Equities

These is the best form of investing as I am totally investing in business and have quiet reasonable understanding of the particular businesses in which I am investing.

1. Have sectoral preference as you might not know every industry and how it works but some industries and definitely few companies.
2. Have patience while investing, while most dont have it, it is because it is relatively very easy to sell on DEMAT A/C as compared to selling same real estate. You wont be selling your house for 70 lacs if your just bought it for 1 Crore, you would probably wait to get atleast 20% out of it.
3. Investing is for longer terms, for short terms it is called speculations and you are bound to lose money in it.

There are lots of things which I can go on but as I mentioned earlier I have to explain history also for better understanding of herd mentality and how the markets react during such times.

Irisih Famine Lesson

The Irish Famine that happened caused shortages of potatoes which were staple food, as the Laissez~Faire economy was there meaning there was no proper control by the government but the markets were running purely on demand and supply. Also, gold standard system was going on and thus leading investors to ask money in gold rather than in paper form.

As you can see in the above mentioned image that the taxes were increased because of the famine situation and the grants which were given were converted into loan form. If we compare it with the Indian markets this is the exact same situation happening wherein the taxes on fuel prices have led to increase in inflationary prices as well as the grants being provided to the businesses were provided with very strict criterias in the form of loans.

The bond markets were revolting during the famine as well as the preference for liquidity changed among-st the consumers leading to increase in gold prices which has happened in the global markets. As the Britain was not financially as strong as it is now, it raised tremendous amount of external debt and thus money was flown into the system to stabilise things.

As the gold was tied to US dollars in the 19th Century we can see that the Irish taxed hiked themselves many a times and controlled the liquidity flow as gold standard practice was going on.

Similarity

As we saw that there was similarity we can also look at the references of Spanish Flu that occurred in 1918 wherein the markets performed in a similar fashion and the insurance companies settled the claims. It was also interesting to see that during such times the companies were offering equities as well as bonds at a bargain price and many investors doubled their income in terms of valuation as well in terms of having fixed regular incomes if they remained invested for more than 10 years time.

Conclusion

So, the history has repeated itself but thank god the corona virus is not as deadly as the Spanish Flu and similarities gives us chance to understand the investor herd mentality.

Homo Sapiens

 While I purchased a new book of Yuval Noah Harari, 'Sapiens: A brief history of humankind', it makes me write this new article while I thought about this particular topic while eating alone in McDonald's and observing the human behavior while what I thought that new normal after the pandemic would be different but it is the same, let me explain it.

While we used to move in tribes with people for whom we cared, loved and with those whom we trusted and are what we are now doing things differently but looking for love, caring about others and be with all those in whom we have belief and trust. 

The pandemic has given me chance to look at things differently and the observations made me understood that no matter what happens, we will be going back to our roots, the things we have been doing but just differently.

Current Scenario

Most of the small businesses especially IT companies and other startups who thinks it is cool to work from home for a life time, it is clearly impossible to do so. Even though the productivity among-st most of the employees have increased it is simply because of certain amount of change I am looking at them that refreshes them or energizes the companies employees to work while remaining with families and connecting with them again.

As I told earlier that many don't want to have office spaces and create a WFH environment, I don't think personally that office spaces are going anywhere, instead if such things happens in future, I would not be amazed to see more cases of depression and exhaustion among-st the employees as they wont be having anyone to build meaningful relationships, engage with each other, share all the happy and sad moments. What we need is to touch, feel and see all those things again and live all the moments.

Companies such as TCS and Twitter have allowed their employees to work from home but as an option wherein the employees have a choice whether they wish to go to their offices or work from home for certain days, but certainly not abandoning the office.

Profound thoughts

I believe that the even though we start adopting new ways to live but doesn't mean we will abandon the old stuff. We might include technology to play a major role in our life but still every weekend we would be reconnecting with our friends, families, connecting with our colleagues, attending functions, vacationing, travelling by air/car the same way as we used to do.

I think that we would be doing business in a different manner, by adopting new ways and means but not totally abandoning everything we used to do because ultimately we are social animals.

 

Climate change as an investment option

Many of us haven't considered climate change as an investment option and just doing businesses in the traditional way as it was going on, but as we are in the midst of pandemic lets first understand that some type of businesses wont come back to life or else wont have a reopening. Yes, people are going to need food, shelter, entertainment, healthcare and transportation facilities but with norms of physical distancing and the lockdown which is some what relaxed now has not left many businesses with cash, almost 50% of the businesses have run out of cash.

Lets take example of a restaurant, if it follows the norms of physical distancing it will be able to serve very less patrons as is used to serve and already falling demand has given it much damage making it difficult to revive properly till the vaccine is found.

 This is the case with almost every retail business wherein the demand has fallen and there has been a change in consumer behaviour towards purchasing things, but in a country like India will it happen the same way as it happened across the globe or it will be a different scenario altogether because as Indians are not taking covid seriously and are returning to the jobs. While many are wearing masks only because there is a penalty on it, such scenarios are happening, only because India has a majority of population with middle income class and lower than that and all of them need money to feed themselves for that day.

Global Oil Demand
The pandemic has shown that oil is not the most important thing and have made it just like any other commodity, while companies are experimenting with work from home culture and accepting it, it would mean that there wont be similar demand for oil consumption as the world is changing according to the times and the governments have realised that investing in climate change is more necessary. So burning oil would definitely mean a permanent reduction in emission of green house gases to a certain level and also easing the way to meet the goals of Paris climate change agreement.

Paris Climate change agreement
The goal is to hold the rise in temperatures to below 2 degrees. This is the main goal of Paris Climate change agreement and economies have realised it. Even countries such as Russia now understands that it must adapt to green energy and make investments in climate change.

Investment in Climate change
If we talk about investment in climate change country such as Russia is facing problem in by not adapting to the changing global scenario. The economy of the world's biggest energy exporter is heading for its deepest slump in 10 years due to the fallout of corona virus so if Russia doesn't adapt, its budget receipts will decline drastically and the growth may be limited to 0.8% per year. The forecasters expect that the recession could accelerate the decline in global fossil fuel demand on which it has been banking on since many decades.

Europe has given out the world's most ambitious climate change package to earmark tens of billions of euros for hydrogen energy. The goal of net zero emissions by 2050 implies of full decarbonisation for the future of the economy and it's residents. Various countries such as France have also provided a fat stimulus of 8 billion Euros for the automobile sector to boost production of electric cars by 1 million cars per year. It is also estimated that in Europe it is going to create 850000 jobs because of investment in green energy.

Here the catch is the cost, most of the hydrogen used as fuel is derived by splitting it from molecule of natural gas but the countries are expecting the cost to reduce drastically because in some countries in the world it is still very costly to use green energy rather than using oil or other fossil fuels to generate power.

Opportunity in India
While I talked about different countries, let me talk about India. India has invested almost $57 billion dollars from 2014-2019 in green energy and have created jobs directly or indirectly. But as we are looking for future we must also look at the infrastructure requirements and challenges that are there. While investments are done to create infrastructure it is the best time now as even if we wish to have electric cars in India, we would be requiring charging stations for it. Now just imagine a situation wherein in cities such as Mumbai, the residents there have to park their vehicles on the road and have to pay for that, this is happened because of improper infrastructure. While we are paying so much for electricity investing in solar/hydrogen/wind farms can reduce the price or if price is not reduced the profits may rise because of investment in green energy and getting the energy at a cheaper price.

I am of the firm belief that for every developing country, investment in infrastructure would boost economic growth and drive demand upwards for consumption. We have seen that even government is pushing for infrastructure projects and from the reports I have read, Mckinsey says that every $10 million investment in green energy would generate 77 jobs  as compared to investment made in fossil fuel which would generate approximately 25 jobs. Also in another report I read showcased that investing in green energy now would generate at-least 400% returns within next 20 years.

I am also of the opinion that we must look at climate change seriously and think of it as an investment for future.

The predicted future and changes

Yes it has been a lot of time that I have posted something and found out that I need to simplify things so started a podcast as many of the readers don't want to read the complexities I write. So as I always do there are multiple things happening in the economy, while many Indians have started to invest in volatile markets I think it is a good sign that first time investors are rising and thus investing their liquidity in markets.

Macroeconomic Views

As i mentioned in my previous blog that there seems to be demand in 2 wheeler as well as 4 wheeler, there seems to be increase in bookings as since the lifting of lock down partially it came in the news that Maruti Suzuki have had bookings of 4000-5000 for hatchback cars in a day and the number is increasing and will definitely increase as more people are preferring to won a vehicle and transport rather than using public transport.

The government has done a tremendous job in giving out the stimulus package but there is water water everywhere and not a single drop to drink currently, many MNCs or big business houses have benefited from this as they took fresh loan at a very low interest rate, this decision of the government also helped in controlling the inflation rate as there was a quite risk of inflation growing amidst the crisis.
Many of us would be thinking how the inflation plays role in such scenario but too much money in the system to spend would ultimately raise the prices as the consumers will be having more money in their pockets and also there is a liquidity trap like situation, the RBI has further reduced the interest rates to 40 basis points leading to downfall in interest rates and cheaper loans.

Reliance also seems to have taken a hit from the demand side shock and is bringing in investors to it's Jio Platforms Ltd. to reduce it's debt. This pandemic situation made consumers as well as investors realize that oil is not everything as we have also seen negative prices wherein the producers were willing to give money to purchase crude oil, but as the demand for oil is rising there seems to be awareness among-st the consumers for climate change and seems that climate change will soon overshadow the pandemic situation and the focus on infrastructure development in a sustainable way rather than what we have been doing till now, just focusing on the cost and means to increase profit margins.

Financial Reforms
I am of the belief that there must be financial reforms as well as administrative reforms within the government, any reform would have to be implemented by the system and execution must be taken care of properly which is not yet seen that much and ease of doing business as well as security is the main concern for the businesses while doing. Though too much liberalisation would also impact negatively as Indians have the habit of over utilisation of what has been given and then complaining also.

ESG (Environment, Sustainability and Governance)
MSMEs must now work and grow considering these three important factors as they are now needed to succeed in the future. Keeping environment in mind many startups have to look for opportunities in these areas as there is a tremendous void available in these segments. Good governance practices and the habit of savings for the time of uncertain crisis as they now have become part and parcel of the business scenario.

Work from Home
While work from home is going to be the new normal in many industries for certain percentage of the employees, it is necessary that we look at developing proper habits and have a routine, thought the productivity is going to decrease it is hence required to take essential and timely breaks as well as do other stuff such as playing board games and some outdoor games also. But even in these times we are maintaining physical distancing but we need to remain social as we were and keep in touch with our connections.

The price of risk and getting ahead in the future

I am getting a sense that I may not be able to write weekly but as COVID crisis is playing with the markets as well as lockdown is getting extended and a stimulus package will be provided wherein almost Rs. 7.79 lakh crores have been provided and the remaining will be provided in the coming time to enhance liquidity. As we all know that we will not be able to live in lockdown as some economic activities are required it is time that I suggest what can be the possible future of investments and strategies wherein one can invest or else work in a new manner but as I always do there are few macroeconomic views I would like to state.

Macroeconomic views

It seems to me that we are a sort of falling into liquidity trap, while countries such as Peru and Chile have lowered their borrowing interest rates to almost zero where the policy rates are ranging from 3.75% to 4.65% as of today.

Policy Repo Rate	: 4.40%
Reverse Repo Rate	: 3.75%
Marginal Standing Facility Rate	: 4.65%
Bank Rate	: 4.65%

Source: RBI

While most might not be understanding liquidity trap, it is when monetary policies fail to attract demand and the interest rates are lowered near to zero wherein it will be useless to keep the money with the banks and there are chances that there will be increased amount of cash liquidity at home and the expenditure is made on cash basis. While this trend was seen because of the covid situation relaxing the lockdown would make the investors make more impulse purchase leading to more expenditure than planned. The government will also be providing and economic stimulus package that was very much needed to revive demand in the economy.

But even though the package is been given I think there will be demand in few sectors but in a niche segment and also I expect almost 20-30% of the firms to shut down post corona virus, the only immediate solution visible is automation. While looking at the current crisis and as many economies have opened up, there have been increase in cases and a 'V' shaped recovery is almost impossible now, the focus of the investors will remain on easing the lock down as well as corporate earnings.

Labour and Supply chain problem

While many of the companies started functioning it is clearly seen that there are problems pertaining to labour, most of the labour have gone to their respective states due to uncertainty, the business owners are expecting that they wont be returning very soon to work and for those companies who have availability of local labour are not getting passes wherein they can work at even half the production capacities and even if they have there is lack of demand. Supply chain is also a big issue now-a-days as transportation problems are being faced to small as well as big enterprises. Why is it so because there are less number of trucks roaming for fulfilling supply chain as the truck drivers have gone. Let me explain this with an example.

Suppose we have around 20 lac trucks during normal condition out of which currently only 60% are functioning which leads to 12 lac trucks, now out of these trucks there is approximately availability of 65% truck drivers and the rest have returned to their native places leading to only 7.8 lac trucks on the road. Thus, this is where there is a tremendous gap to be fulfilled and is only expected to be recovered in the next 7-8 months time after the lockdown gets over.

Demand in some segments

As we all have grown safety standards during the lockdown there seems to be some area which might be affected with and increase in demand.

• Affordable Housing Market: Affordable housing market is an area in which the demand might rise because it is better to own a house in situation like this rather than paying rent and making unnecessary expenditure in which we have no guarantee that we might not be thrown out of the house during tough times. Also the long term expenditure will be less than not owning a house. Also as there have been success in work from home many companies will be making their employees work from home in different cities thus in order to have comfortable working environment, the employees will definitely be seeking for affordable home.
• 2 wheeler: 2 wheeler automobile will be seen with an increase in demand as those of working class will be looking at safety of their own and will have to maintain social distancing, leading to increase in demand for 2 wheeler. I also expect second hand car market to rise as there will be those who might be able to afford at least second hand car and will be looking at comfort.
• Ancillary products: Ancillary products required in manufacturing the above mentioned asset class will also have an indirect increase in demand such as steel, batteries etc.

Strategies of working in future

As I expect many of the firms to shut down but those firms who start innovating will not be finding a hard time. Many of us are thinking of innovation as something big thing just because it is a fancy English word, but it is not the case wherein every business is different and we have been earning hefty amounts from what we always used to do so we have stopped our focus from the process. Business process is one of the main thing which we generally neglect while we are earning more so not giving at least 20% of your time and money on doing R&D in business process would definitely help in lowering the cost and finding new business.

Investing in technology and automation would be the best thing but it would be taking up lot of expenditure, so it is better to have technological collaborations or else capacity allocation agreement with other larger firms and utilize their facility. Many of you would be thinking that why would a firm provide any other business to utilize their production capacity? It is because there will be very less demand and there would be fixed costs associated with the businesses which they need to reduce, firms such as BHEL, called navratna of the Indian government has floated letter wherein they are calling MNCs as well as domestic manufacturers to utilize their production capacities and work. All the company wants is work because it has almost 18000 employees and amazing talent pooled in one company. So can't MSMEs do the same?

Applying 80/20 rule in business, we have seen that small businesses generally do not invest any money in finding out new business opportunities that might be there but are not doing it. While we still do the existing business small business owners can apply 20% of their resources in finding new business opportunities when the business is quiet old, lets say at least 5-7 years and then focus on 80% of the time on expanding the new business and 20% of the time on old because it would now be automated at a certain level.

Hiring professionals for a business when business starts growing is a necessity but small businesses dont do it because of the insecurity that that guy might steal your entire business. It would not happen so but an intelligent employee will certainly find new means of earning and reducing the cost as well as will keep the owner on his/her toes because he/she needs to be updated enough and match the frequency at which the employee is working.

Investing in Future

While I mentioned all the strategies I think might be helpful post the virus situation but when we talk about future I find investing in climate change will generate maximum returns and will also cause disruption. Right now I am talking about those who wish to invest in shares, what many forget is that they are not just stocks available at a certain price but you are also investing in a business. I would suggest that the business should have a simple revenue/business model to operate in which you understand.

For eg: Let's say I think that investing in companies dealing in water treatment and related areas would generate more returns, while we also know the level of pollution has increased treating water will be our priority and sooner or later India might as well have taxes on usage of water, similar to that of US and other countries.

When I invest in water treatment companies products required in them would also be there and a suitable demand for them will be there.

I also think investing in cold chain logistics will be generating good revenue, as we also deal in perishable products our demand for end product such as ready to eat foods have been growing and storing all these foods will definitely require cold chain, not only these but chips and nachos and other FMCG products made out of vegetables will also be requiring cold chain. Similarly to export few items there is necessary requirement to have cold chain infrastructure. Also setting up infrastructure for renewable sources of energy will be having a certainty of demand. While Solar and Wind are very advanced they are also cheaper than using fossil fuels in many countries and they are future in providing and fulfilling the demand of power sector.

Meltdown: Final showdown and Investment in Future

While it has been quite a break I didn't write because it felt like just reading out the news to all you people, but finally I am glad that there are relaxations provided for the economic revival. While the government is doing a good job the virus situation is likely to be there for 2 years and if the relaxations wouldn't have been provided now then it would have been very difficult for most of the people to survive the crisis.
India as a country gave a stimulus package but any country cannot have a lockdown period for long enough time as they wont be able to provide to everyone. While we have certain problem populations is the major one wherein not all can the citizens will be able to take the benefit from this situation.

Again I would like to give macroeconomic views and some problems which would have been of the lockdown relaxation would not have been provided.

Macroeconomic views
While many are talking about herd immunity I wont be even discussing about it, as I am no expert in that field, but there were few serious issues.

Migrant Labour worker
This is a major problem to most of the companies wherein those workers who were not able to travel to their homes will travel after the lockdown is lifted totally. Companies which focus on localisation would be facing less issue but there might be an increase in wage demand from the local workers because of the unavailability of the migrant workers who are willing to work for less money and for more hours also. The owners now are not able to afford the salaries for eg: even companies like reliance is going for 50% salary cut then it can be seen that MSMEs will definitely looking to reduce their fixed costs and negative cash outflows.

Demand Collapse
While most are expecting the demand to rise like our share markets have risen, it is practically impossible for the consumption to increase in a 'V' shape manner, it is most likely that the consumers will be looking after the survival instinct and will wait for a risk averse situation and then start pouring their money in them.

Liquidity Problems
Though this is always a problem, MSMEs will be most likey to be affected if the banks does not pour liquidity into the system. While government projects play a major role it is the responsibility of the government to pump in cash for the due payments and not delay in payments. There is a certainty that there will be cash flow problems for next 6-7 months pertaining to the situation and I expect at least 10% of the businesses closure due their overheads and not maintaining a proper cash balance.

The food supply chain
This was a problem and will remain a problem in distribution of the food grains, even though the government had the stock of 1 year and for this year the purchases have just started, situation such as hoardings were seen and it is likely that the prices of such ingredients is likely to go up. The migrant labourers who were stranded had difficulty in getting food from ration shops and those whose family is big didn't had proper amount of support.

Stimulus
While all that had been announced was not a government expenditure done looking at the corona virus but just some amount of addition to the expense what the government does every year and maybe releasing the payments on time. While a proper expenditure on revival is expected which will increase the demand and provide liquidity to the MSMEs.

While many might be enjoying the lockdown, there are various decisions by the government looks like harassing the MSMEs such as the employees must be taken by the bus to their workplace. While many companies are already having liquidity problem and inadequate staff this creates another hurdle, in a manner to stop the company from working. There are many people who have lost their single source of income and the millennials are not likely to understand these as many of them dont have responsibility of running their house.

Even government decisions to hault the payment of Dearness Allowance to their employees there was oppose from their employees than how does government expect the private companies to pay their employees for months without earning revenues. Almost 70% of listed companies had earned zero revenue in April and I haven't counted the MSMEs till now.

Investment in future
Post covid era will be totally different wherein there will be disruption in the industry as the whole industry would try to get into automation, many jobs will be lost but even more than the jobs lost there will be more employment for the new opportunities and only for those who keep on upgrading their skillset.

I believe most of the savings must be exhausted but even for those who are left with something must follow simple steps by looking into the future. While horse was replaced by cars because of increase in speed, this time we are focusing on mileage achieved by bringing electric cars by creating a disruption in the existing business. We might not be able to build a car manufacturing business but atleast invest in ancillaries.

For eg: before making cars we will be needing infrastructure to support the cars for long range runs such as charging stations, batteries, solar power parking plots etc. Thus we may invest in companies which will be essential for future such as steel making companies, solar cell making companies.

We would be looking at the companies which are directly or indirectly investing to support green business because that is the future we are looking for, while it is not said by be but I read a report in which people like bill gates said that investment now in climate change would bring in a return of atleast 400% within next 20 years. While many see but totally ignore the fact that climate change in happening and making us change the way we used to do business, than why not look at climate change as an investment opportunity and the better thing is one must not need to have the knowledge of fundamental analysis but just a good viewpoint into the future.

Meltdown: The Volatility of the future and peeping into history

As the markets have been very volatile since last few weeks this looks like a perfect time to write about the changes in the future and the markets as well as the attitudinal changes that will happen to post virus era but as usual I will be starting with my macro economic views about the oil truce and the markets and probable future changes relating to them.

Macroeconomic view

Various governments of various countries have provided bailouts for their citizens either in kind or cash or a mixture of both and even India has provided a bailout for the country in mixture of kind and direct benefit of cash transfers. Even though we have had a stimulus bill, it is very difficult for MSMEs to survive in near short comings of about 6 months in the market without proper liquidity and RBI has taken all the steps it can take. It is not a time to criticize government at this time as it is doing a tremendous job but we must also look into history as in what must be done for the future and what scale is required.

By history I am talking about the steps take by Franklin D. Roosvelt during the depression of 1930 because it is considered a great recovery and also the steps taken by various governments during 2008 financial crisis by providing a stimulus bill as big as 10-15% of the GDP for a steady recovery considering a long term perspective wherein things are taken care for at least a period of 4-5 years.

Market Volatility

The markets have been volatile since past one month and since few weeks the Indian market have been copying USA markets with almost negligible difference as the markets are responding to the future that is there after 2 years from now. It is a general psychology that most humans have a tendency to form a pattern if three or more dots are connected even if there is no similar pattern from the past. 

There has been a comparison been made of the Volatility index which shows that the market is following the same pattern as it happened in 2008 financial crisis and there seems to be another spike in Volatility index when we will be seeing the stock markets crashing again.

 This above image shows the spike in volatility and NIFTY Index performance wherein if someone who doesn't know are inversely related to each other meaning that when the VIX index rises SENSEX/NIFTY shall crash and vice versa.

We need to look at the volatility and make a careful observation and a thought that whether there will be another spike or not? Also the markets have shown positive results and one must understand the main reasons behind it:

• The positive new of the corona virus relating situation as India has the least number of cases per million residents and also that sample testing have been started showing us the signs of relief and the impact of corona virus on green future.
• The stimulus package provided by the government has been a major relief to most of Indians as well as the FM Nirmala Sitharaman will be providing another stimulus package for the industry.
• Subsume of the industry is also a big advantage as the firms will start it's earnings and there wont be a total loss to the firm.

Change in consumer behavior

The main question arises is that will the consumers start following or go back to routine or will they start saving more?

Again I would like to take you to the history if it provides us any guide or future opportunities and clear vision. If we look at the spanish flu of 1918 there have been few lockdowns of similar nature but once the citizens start developing immunity then there wouldn't be a need for complete lockdown for the same but the major concern is how soon will we develop immunity over corona virus. 

The government is trying to have a 'V' shaped recovery after the first phase of lockdown by infusing liquidity in the market so there is more availability of cash and spending is more, but as we are talking about behavior change it seems that the consumers will be saving more and there can be rise in e-commerce expenditure and buying things from there with regards to safety concerns post virus period. Even the millenials will start saving for future uncertainty. It has also been noted that after every crisis there has been a change in attitudinal behaviour. For eg: After WWII there have been a significant increase in working women class which was not there earlier and now I expect increase in e-commerce expenditure by households but again looking at India it is very unlikely to predict regarding online expenditure.

The longer the lock down the harder it will be to gauge consumer behavior, will people go back to their old habits? Will people be more careful and save more? The longer the lock down lasts, more people will lose their jobs leading to decrease in household spending and it will take much longer to return to normal economic activities. There are still few questions remaining and I expect the readers to have a good discussion:

• Will you be happy to work from home?
• Will you be more happy if the children don't go to school and learn from home through online means?
• Will there be a Universal healthcare system for the India?
• Will there be any increase in budget allocation towards health care and education?

Liquidity Preference

There has been a drastic change in liquidity preference of money among-st the Indian households as the investors do not consider stock and bond market as safe investments during the volatile market. Thus, the demand for gold has increased leading to increase in price of gold also. Any uncertainty in future would lead to increase in gold prices as it is considered much safe investment than any other form and also not only because of the safety concerns but also because the stock and bonds have started giving very less returns to the investors.

OPEC truce crisis

After days of drama the OPEC+ countries have been in truce to produce a limited amount of oil as the demand has decreased in the current period in response to corona virus triggered situation, but the deal would likely to come under pressure or changes when the situation turns normal.

But these are times with unprecedented collapse in demand due to virus and I would not be surprised that while there will be increase in demand the countries would be breaking the truce to fight for the market share. As of now Saudi Aramco has offered it's clients of refineries across Asia and European markets to have deferred payments up to 90 days, this move clearly shows that though there is a truce there will be many attempts by the companies to capture good amount of market share.

I would request to provide me your thoughts in the comments section

 

Meltdown: The new normal

There has been a volatile market in the past few weeks with the assumptions from investors that certain things might happen. What you are seeing in the market is not of the current situation but regarding the outcome or the expectations after a year or so that will happen because of the current decisions taken by the government to fight the crisis.

Macroeconomic views
As every government is has tried providing a good stimulus bill to their country to support the citizens residing there, there has been a tremendous bond purchase by the G-7 countries from their respective central banks nearing to $1.4 Trillion which is close to 5 times higher than 2008 financial crisis borrowings.

Even if we look at the Indian scenario the state government are raising funds through bonds and as yet the Reserve bank has not stepped in.

Looking at the current scenario of volatility of the markets we do not still know whether we have touched the bottom or not or have we passed that stage. Being an optimist I expect the markets to grow in a 'V' manner but a 'U' or else 'L' shaped curve is expected considering the position of the COVID-19. Even the experts who are racing to make the vaccines have asked for a time of 15-18 months to make proper vaccine. Still even if the vaccine is made the supply is questionable as well as the population which will be vaccinated will take tremendous amount of time and before that we will have to live in the new normal situation.

It is also likely that we have entered into recession starting from March when the economy started to tumble leaving many problems to MSMEs and corona virus giving it a boost as we see there has been an increment in the unemployment rate and is expected to be at 23% currently and is expected to be more.

The new normal
The new normal after the crisis situation will have social distancing at the most and increase in health measures till the vaccine is not found. The factories may start running but there is a lack of demand as many countries have gone for a lock down and may extend till there is a proper certainty from the healthcare officials. As the daily wage earners have also been migrating there would definitely a shortage of  laborers and the companies wouldn't be sure of the production capacity they may achieve. There is probable threat to the companies in near term as after the lock down is lifted there will be a constant fear among-st the companies of another lock down in case the number of patients goes upwards at an increasing rate.

The strategic change
The companies will be changing their strategies globally and would be looking for local production capacity enhancement as well as multiple countries in order to never stop the business supply chain because of another crisis that might happen in future. Considering such changes the outflow of the cash would be very crucial as spending on non essential things would be stopped immediately and conserve cash for at least 6-7 months till the companies have enough buffer to spend on various things.

Marketing Mix
Marketing companies are likely to be affected because of the lack of demand and also as the companies would not be willing to spend much as the consumers would mostly interested for surviving the corona virus situation as the number of cases are expected to go much higher after the lock down. Thus marketing firms are likely to make a long term strategy and bring out out of the box business models in order to survive in the market. Looking at this situation another 2-3 months would be very crucial for the marketing firms

Labour Problems
Considering many of the companies would now be upgrading technology and would try to automate as much as possible to have less labour problems as it seems that now the labour problem is going to rise since many of the daily wage earners have migrated and bringing them back by giving them advance payments would largely affect the cash outflows. Even the labourers are scared to come to the companies which comes under the essential services in fear of corona virus. This will be there as labour shortage is always there in the market but the fear will only decline with vaccine.

Logistics
There has been volatility in the crude oil market but the current deal between the OPEC+ will certainly stable the oil prices.

This has mostly affected the logistics market as it seems that mostly logistics on railways would be more affected more as there are chances that the prices of roadways may go down with decrease in crude prices leading to a very tough competition and acquiring more consumers to roadways. But there is currently a shortage in supply chain in roadways and is not likely to be met in the crisis time, also as increasing the safety concerns some companies may make it compulsory to have 2 drivers and also if there is a single driver his health is taken care of.

Financials
The financial market is likely to evolve as there will be increase safety in the market as the issue which always remains 'Average Receivables' will still be a big problem. While there is a solution in the export market why haven't there been a similar agencies working upon the domestic market.
For eg: ECGC is there which identifies the limit of the consumer in the other country and also gives the exporters 95% coverage in case of defaults.
Then why haven't the banks joined together to give provide information on how much credit limit should be provided by the suppliers to their customers and also probable risk coverage upto certain percentage by charging regular premiums such as the insurance companies. There can be something as fixing the credit cycle even for those firms who are not Pvt. Ltd just to not enter into the hassles of running a company.

Green Business
The future, as India is moving to sustainable and renewable energy projects this is the certain future and investments in this would also be bringing results atleast 4 times that of the current market. Also we have infrastructure problem which primarily needs to be sorted out before transitioning into the future. As the government wants to have all the cars to be electric by 2035 it is definitely impossible without a sound infrastructure planning of bringing charging stations as well as using the renewable energy other than solar also to use. Since there are no new innovations happened at reducing the cost of using wind as well as water to be used for large masses, there seems likely a future of getting and developing a new business model into each of the area and developing one's own niche.

Currently I have mentioned about few things and would come up with new sectors in the next blog about the new normal that will likely happen post the virus period. 

Back to basics

Since I wrote my last blog I did a social experiment of deleting social media apps and getting away from it, at least for 9 days I did that and realised that I was wasting most of the time on doing useless things and could have utilised that time doing something else. Currently I am on instagram for various reasons other than socialising.

I decided that in this blog we should go back to the basics meaning how the world would start post crisis situation. Again I will be writing about the economy because that is what I can understand things easily.

Macro view
In the previous blog I wrote about investment strategies but this time I would be just giving my views on the probable changes that can happen in the economy. I will be starting with showing how the markets have crashed and the probability of going further down.

Sensex	27590.95	-11032.75	-28.56%
Nifty	8083.80	-3219.50	-28.48%
Nifty Bank	17249.30	-11927.75	-40.88%
Nifty IT	11680.05	-4043.15	-25.71%
BSE Mid Cap	10219.05	-4544.59	-30.78%
BSE 500	10527.29	-4256.30	-28.79%
BSE FMCG	9982.00	-1022.20	-9.29%
BSE IT	11780.88	-3552.92	-23.17%

The above mentioned data shows the indices changes since last 1 month and we can understand that sensex as well as Nifty have crashed 29%, whereas bank Nify has crashed around 41% showing that more than any sector financial services have taken more hit as the assets are under stress because of the lock down and the moratorium provided to the business bringing a major possibility of future NPAs as there seems to be lack of demand post crisis from the consumer. Considering this situation, there is a long term impact as I mentioned in the previous blog that it might take atleast 2 years for the recovery for the economy the decisions by different countries of doing lock down for a longer period assures my claim regarding that and the MSMEs are most likely to be affected until an unless some specific stimulus bill or some new financial reforms are not given by the government.

Survival of the fittest

As the economic conditions prevail there are many possibilities if MSMEs shutting down or will be requiring restructuring from the banks because of the magnitude of shock to the corporate bottom line and the speed at which the things have happened has put new and young companies who are debt burden as well as startups in the risk of probable default and shutting down.

A different version of the economy

Every crisis teaches companies something new and those who survive the crisis will be starting to implement new strategies and policy structures. Since Covid-19, work from home has been very successful in most of the companies as well as in education fraternity making the companies remove some of the unproductive sales offices and making the employees work in remote locations even from home or from co-working space which would save their infrastructure costs as well as rental costs. 

Localisation will start in major countries as since China was under lock down situation most of the big companies faced problems regarding supply chain solutions and keeping up with the pace of the demand. Thus, according to me the companies won't be only thinking of importing from a particular country but keeping multiple options so that business won't stop or be affected as it was in the current situation.

Millennial mindset changes

Millennials are of the mindset of not owning cars or having a house of their own, considering the increase awareness of health and safety there can be shift in demand from sharing economy to owning a vehicle as well as buying a house for long term consideration. This gives a realty check that there might be increase in demand in hatch back cars which are not very expensive also in affordable housing once the crisis gets over as most of the savings of people have been wiped out in the financial as well as health crisis.

Developmental Reforms

Though not definitely any particular type of reforms but as the need of the hour says that there would be financial reforms taking place to save the businesses and get things more streamlined and provide some sort of security to the business owners, also health infrastructure would be taken more seriously and proper development might be taken into consideration by forming a policy and giving incentives to the new businesses in certain essential areas.

But there is still a long way which needs to be passed as we will be surviving for few months and going just back to the basics where we all started.

Investment for post virus periods

Reflecting upon the changes that have occurred in the past one month, I am writing this blog for those investors who are willing to look past short term benefits and assuming most of the consumers would have lost the capacity to invest in long term right now. The markets have been volatile on daily basis but have spiraled down in the last one month and the daily movements are happening on the government announcements as well as the COVID-19 panic the consumers have reflecting their psyche to the market.

Macro economic views

As there were global financial crisis in 2008 most of the stocks the stock market went into a correction but this is a fall and not the correction as precedent-ed by the investors mainly because of uncertainty of the economy starting again in the short term and the investor panic because of the virus situation and increase in number of cases. Looking at the panic situation currently Indian firms have lost around Rs. 20 lakh crore in terms of valuation and even NSE Nifty 50 have tumbled down to 29%.

Sensex	28265.31	-10031.98	-26.20%
Nifty	8253.80	-2947.95	-26.32%
Nifty Bank	18208.35	-10938.80	-37.53%
Nifty IT	12045.85	-3167.10	-20.82%
BSE Mid Cap	10339.98	-4260.04	-29.18%
BSE 500	10728.88	-3898.74	-26.65%
BSE FMCG	9898.67	-1065.17	-9.72%
BSE IT	12126.35	-2860.85	-19.09%

Overall equity markets have tumbled but it started before the virus spread and we see that no markets are considered as safe investments looking at 2008 global financial crisis and current panic situation. The worse is yet to come as the fear that virus will extend the recession and the recovery will be delayed.

Looking at the government stimulus provided as well as the stimulus provided by IMF it will be beneficiary for short term only, the oil is going down and has reached almost $20 per barrel and the rate cut for SSC also most likely will make it around 6% making a shift in consumer markets considering the investors to reshuffle their portfolio.

The damage was also seen in the bond markets

Asia Pacific    10-Year Government Bond
Japan	100.94	+0.0130	-0.0090
Hong Kong	114.90	+0.7780	-0.0020
India	102.22	+6.1380	-0.0710
Australia	117.81	+0.6780	-0.0850

Sectoral View

Energy remains the worst hit sector followed by financial services and real estate. Though there are exceptions such as Adani Green whose market cap multiplies 4x in the last six months and is not affected that much and similar other companies.The industries that seem to be worst hit are infrastructure companies that have debt.

Past the crisis 

There can be no denial that the economy will not move into recession since the commercial activities of the business has almost stopped and post lock down businesses still suffer accounts receivables problem and also that most MSMEs do not have any security for losses in A/Rs mostly applicable in B2B businesses.

There will still be the uncertainty in how much time the markets will start to recover. If the situation starts getting better I expect the market to again start correcting itself within next 2 financial years and considering a growth in demand in India if the government starts building infrastructure projects and makes payments on time.

Investing in post virus period

There are 3 strategies in which the investors must look upon

• The investor must look upon those companies which have lost nearly 50% of the market cap in the crisis period but have strong fundamentals and a proper operating margin increasing the bottom line. There must be increase in sales volume and not increase in revenue because if inflationary prices and also a low debt company which would be strong enough to sustain in times like this.
• Having a look at distressed equity such as the airline sector, they would definitely perform as the economy tends to perform and things get normal but there are chances that they may incur losses but in such cases there is a blessing that the government may bailout the company such as few of the banks which were merged.
• Another strategy is to go more safer wherein the company has low debt to equity ratio and has high cash balance such and will remain in business for at least 20 years from now on and have also performed better in pre-virus period.

In my view the economy will recover but it will take more than a year and few structural and policy changes to support and boost the businesses.