COVID-19’s second wave is distinct from the first wave. Last year, there was a lot of doubt, but now everyone has at least once directly witnessed the pandemic and lockout, as well as their effects on health, families, friends, careers, and businesses. Painful and unpleasant experiences, on the whole, are excellent teachers and offer life lessons.
What does this mean for the Indian economy’s long-awaited recovery, which has been expected since 2018?
We’ve entered the fog of war. We don’t know a lot of stuff. Investors do, however, make choices. Investment in a pandemic is yet another example. To begin with, we know that central banks, led by the US Federal Reserve, shape the global investment climate. In pursuit of yield, liquidity is circling the globe. Some of that money made its way to India, where foreign institutional investors (FIIs) purchased a record $37.5 billion in Indian equities last fiscal year. By January 2021, FIIs had bought a total of $37.5 billion in Indian equities.
Meanwhile, as economist Stephen Roach puts it, “the fiscal floodgates have been opened like never before: the $900 billion packages in late 2020, followed by the $1.9 trillion American Rescue Plan in March, and now a proposed $2 trillion-plus in additional infrastructure stimulus.”
The big question is how much of that money will end up in India. In April, as the number of cases of covid-19 increased, international equity investors withdrew $1.2 billion from Indian markets. We don’t know how this will play out, but Indian stocks have always been vulnerable to foreign purchases. Over the last year, companies in India Inc have performed exceptionally well. Companies were able to reduce overheads and increase margins quickly. Add to that the economy’s “formalisation”: after demonetisation, via GST, and now into Covid-19, smaller businesses have been less prepared to withstand the stresses of our market world. The major publicly traded firms have snatched up the market share of smaller companies.
What have investors learned from the pandemic, as depicted by the recent increase in investment in the second wave?
Investors will continue to shape their theory and back it up with money as long as they assume they are not playing in the dark and forecast the result with a reasonable degree of certainty. Last year, we also saw massive stock market gains through covid related investments, which was focused on the expectation of a vaccine-driven economic recovery. In India, Zerodha added twice as many customers as it did before COVID-19. JMP predicts that the brokerage industry in the United States will add more than 10 million new accounts in 2020, with Robinhood accounting for roughly 6 million of those.
But why is it happening now?
The truth is that it was already in the process. The lockdown gives people (retail/individual investors) more time to do more analysis, reflect, corroborate, shape their hypothesis, engage, and look for investment opportunities based on their hypothesis/investment memo.
Eleven startups achieved unicorn status in 2020, and 12 more joined the club in 2021, with more expected to join over the rest of the year. This is a big morale boost for angel investors and micro Venture Capitalists (VCs), as they usually get an exit by Series B or C.
Despite regulatory concerns, SPACs have given mature companies a technology play, and prominent institutional VCs or investors hope for a potential exit path. If ReNew Power, India’s largest renewable energy producer, completes the SPAC transaction successfully, it will boost investor trust in the entire ecosystem.
Stock/equity markets believe that lockdowns would be for a shorter period and that the COVID-19 cases will peak in around two months. Most industrial and agricultural production will continue to be assisted by uninterrupted logistics. The annual demand will suffer by 0.5 per cent on an annual growth forecast of about 12.5 per cent. The government would not take drastic steps to announce a complete lockdown.
A two-week lockdown accounts for less than 4% of the year, and instead of succumbing to fear and uncertainty, most investors may not want to repeat last year’s episode, in which their losses became someone else’s benefit.
The different types of investors and how they work?
Those who manage their own money (retail/individual investors) and those who control the money of others for a fee and performance incentive are the two categories of investors (institutional investors). The performance measure for both is, at its core, a return on investment over a specific time‘ T.’
Investors who manage their capital, by definition, have more skin in the game and are more fast and versatile in their responses. However, they can be impulsive and are usually limited by their resources and opportunities. On the other hand, institutional investors have a stake in their credibility, have the resources to look for opportunities during the year and be more comprehensive, but are bound by the fund mandate and have a fiduciary responsibility to their Limited Partners (LPs).
As a result, many retail investors end up following lagging indicators, which institutional investors most likely generate. Still, all are linked in a loop and feeds into each other at some stage.
So, what’s next?
The impact of Covid on investments in India is huge. It’s humbling and encouraging to see how our country is banding together to support each other in these times of crisis. Even if investor sentiment is positive, it is self-evident that consumer demand, supply, and emotion are all about us as a group. Individuals own companies and businesses, and most people’s families and friends seem to be affected somehow. There will undoubtedly be a slowdown in economic growth, at least for the time being, but if you as an investor have a good understanding or insight into specific sectors and how they will play out, go ahead and take the chance.