In some ways, the financial year gone by was more like a decade in the guise of a year, rolled into a week. Well, that’s the frenetic pace at which things happened, one way or the other.
The world faced one of the worst health crisis. The Pandemic in turn, triggered an unprecedented global economic crisis, which in turn, further exacerbated an already widening economic inequality globally. This could be one of the reasons behind social crisis that manifested in different forms, like the BLM (Black Lives Matter) movement in US and Europe for instance. Geopolitically, tensions between US-China and US-Iran kept simmering. We also witnessed a climate crisis in the form of erratic weather events in different parts across the world.
It wasn’t all gloom and doom though. If at all anything, it was a learning curve for everyone across all walks of life. As the saying goes “A problem is a chance for you to do your best” and this was a year when the world rose to the challenge – individually and collectively. The policymakers soon realized that this was not a battle that could be fought in silos. The virus, after all, did not recognize any boundaries. Collaborative efforts ranging from export of testing kits to knowledge sharing on virus and eventually, development of vaccines in record time have been critical in allowing the world to breathe easy for now.
The first shots of relief to the world didn’t come in the form of injectable vaccines though. Unprecedented fiscal and monetary stimuli across the world, prevented the global economy from slipping into a comatose state. In India, the Government adopted a multi-pronged approach, focusing on direct income support for people at the bottom of the pyramid , credit guarantees for small and medium enterprises and wide ranging structural reforms (Agriculture, Labour code, push for privatization, incentivizing domestic manufacturing to list a few). RBI too was decisive in its approach with a 5-pronged strategy of steep rate cuts, massive liquidity injection, moratorium, one-time loan restructuring and easing of prudential norms. The Union budget for FY22 too addressed the need of the hour, as the finance minister delivered a growth-oriented budget focusing on capital expenditure, which has a multiplier effect. Government’s determination on privatization could be a game changer in the long run. Forex Reserves swelled to over $ 580 billion as India growth story continued to attract record FDI and FPI flows.
All in all, policy makers worked in a cohesive manner to ensure macro-economic & financial stability and India is already out of technical recession with GDP growth turning positive in Q3FY21.
While corporate earnings growth has been lackluster over the last several years, signs of green shoots are visible. A new growth cycle may already be underway driven by many factors including low interest rates, cut in corporate tax rate, favorable policy regime, global geopolitical re-alignment, revival of investment cycle, recovery in demand and innovation and cost rationalization in post-covid world. Potential recovery of real estate sector on account of low interest rates, pent up demand, higher affordability and government incentives (stamp duty reduction) could have a positive multiplier effect on other segments of the economy. Strong and consistent GST collections over the past few months give a reason to be optimistic. That said, speed of vaccination and rising covid cases recently could be the key variables to watch out for apart from the cues from the global economy. While RBI has been focused on growth revival, they may have to keep an eye on inflation expectations given the demand recovery, firming commodity prices and businesses focus on margins.
While sooner or later the pandemic is likely to be behind us; creativity, innovation and adaptability that kept businesses and humanity afloat over the last year will continue to hold us in good stead going forward. Last year, with the onset of pandemic, textile companies in India started manufacturing and even exporting masks and PPE kits. Breweries and Distilleries began producing sanitizers. Some others met the demand for thermal scanners. Use of technology in health care sector was a game-changer during these times. In some instances, Robotic technology used previously in factories and warehouses, was used to facilitate contactless movement and delivery of medicines, blood samples and meals to patients. From the smallest vegetable vendors to the largest conglomerates, everyone leveraged technology and embraced digitization to keep businesses ticking. More and more businesses started adopting digital marketplaces. Online classrooms/Education platforms ensured that learning was not in a lockdown. Restaurants and supermarkets too played their part, by changing their processes to incorporate new safety protocols. Supply chains were broken, new ones were established - all within a span of few months. This never say die spirit of Indians is the biggest positive to come out of this crisis.
India has been a leader in the era of digitization in financial services and Covid has certainly accelerated this trend for good. With pro-active support of market regulator and by leveraging digital technology, Mutual Fund industry ensured seamless execution of transactions during the pandemic. Wider adoption of technology certainly augurs well for our industry in the years to come.
For investors, last year and half has been a learning experience of sorts. No amount of literature on asset allocation could have emphasized its importance as well as the pandemic inadvertently did. More and more investors are now prioritizing asset allocation decisions than ever before. Also, investors have witnessed the follies of knee-jerk reaction in investing. After the sharp fall, amidst hazy clouds in the month of March last year, the natural reaction for some investors would have been to exit equities after getting bogged down by the pessimism around. As we have seen subsequently, NIFTY 50 has moved up by almost 70% in the ensuing 12 months.
Human mind tends to oscillate between extremes. Having a financial plan, with sound asset allocation, and acting on that plan are essential to curb the fallacies of human behavior.
Having the discipline of acting on a plan and not reacting to the market gyrations is the key to long term success in investing. The year gone by was a testimony.
This article is for information purposes only and does not constitute an offer or invitation to sell or the recommendation or solicitation of an offer or invitation to purchase any securities (“Securities”) of HDFC Asset Management Company Limited (the “Company”) in India or any other jurisdiction. The information provided herein is derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein are as of 31st March 2021, involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. HDFC Mutual Fund/AMC is not indicating or guaranteeing returns on any investments. Readers should seek professional advice before taking any investment related decisions and alone shall be responsible.
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