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.
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