Vijay Kumar Gaba

Some of the readers have found my yesterday’s post (The best place to watch this Opera), unnecessarily alarming and extremely hypothetical. I respect their opinion, though I may not necessarily agree with their comments.

I had faced similar kind of criticism, when I found that a symmetrical fall in the market due to outbreak of pandemic may be unwarranted. I expected that the impact of COVID-19 lockdown over various sectors and businesses may be asymmetric and therefore the precipitous fall in the entire market is a big opportunity to buy the businesses that are likely to be less affected or positively impacted. (Time to Take Big Call) My decision to go tactically overweight on equity did not go well with many readers at that time; though I have no regrets. Moreover, I corrected my tactical equity overweight stance in late August (Preparing for chaos – 4). Presently, I am maintaining my standard asset allocation of 60% Equity; 30% Debt and 10% Cash; and as stated in yesterday’s post I intend to go tactically underweight on my equity allocation and increase cash in the coming months so that I could watch the situation unfold without any lines of worries on forehead and adequate dry powder in my pocket.

Now, coming back to the criticism of me being unnecessarily alarming and extremely hypothetical; I would admit that there may be some points of view from where I may look alarmist or hypothetical. But at the same time there are many other points of view that may show different aspects.

To give an analogy, I see the present situation as one with the battle with a strong enemy. While the battle is continuing and armies from both the sides are deeply engaged; it is essential that pain, wounds, blood, destruction and death are completely overlooked. Bothering about these things may make the soldiers emotionally challenged and weaken their will to fight the enemy.

However, when the battle ends, regardless of the victory or defeat, both the sides will have to face the consequences. The wounds would take time to heal. The soldiers will have to adjust themselves to work without the organs that got amputated. The assets that got destroyed in shelling will have to be reconstructed. Each coffin returning from the battlefield will have to be accounted for and dead would need to be buried. This process is usually excruciatingly painful, prolonged and emotionally devastating.

Presently, we all are fighting a battle with SARS-CoV-2, popularly known as COVID-19 or Corona Virus. In past seven and a half month, the economy has suffered a lot. Remember, Indian economy went into the battle with SARS-CoV-2 with a weaker immune system.

The sub-par growth for past many years had already weakened the economy. The government and RBI had already used a lot of ammunition to fight the economic slowdown. The financial system was struggling with the highly debilitating NPA disease. Numerous small and midsized businesses were already on the verge of collapsing. The corporate earnings growth had been anemic for past one decade. The external trade was not growing due to (i) poor global demand and (ii) intensifying competition from small countries like Bangladesh, Vietnam etc. The employment generation was materially inadequate, when seen in comparison to the accelerated addition to the workforce every year.

The pandemic has materially increased the distress at household as well as business level. The resources of the government are also severely constrained. There is some monetary ammunition left with RBI, but it is not certain whether RBI will be able to save it till the end of the battle with the enemy. Once the battle nears end (vaccine is developed and it begins to reach people), the States may begin to withdraw the relaxations. The coffins will begin to reach home by next summer and will have to be accounted by the financial investors only, as is the case always. I see this scenario from where I am standing. If someone is standing at a different vista point and able to see greener pastures, I envy them and sincerely wish good luck.