The two thousand twentieth year of
Christ is coming to an end. This year has been totally forgettable and
remarkably transforming at the same time. It reminds me of the title of the
autobiography of legendry poet Dr. Harivansh Rai Bachachan – “क्या भूलूँ, क्या याद करूँ”.
Notwithstanding the all-time high levels
of stock market indices in most countries; the global financial system
inundated with trillions of dollars in free liquidity; over US$20trn worth of
bonds yielding negative return globally; the massive economic and social shock
of Covid-19 pandemic has left billions of people in distress. The inequalities
of income, wealth and opportunities have risen to new highs.
Significant developments have been
reported on the front of vaccine development to check the spread of Covid-19
virus. Many countries have already authorized emergency use of some vaccines;
and people are being administered such authorized vaccines. Nonetheless,
recently a fresh wave of mutated version of Covid-19 virus has been reported
from some places in Europe (especially UK), resulting in fresh set of mobility
restrictions. This indicates towards the possibility that the world may not
return to total normalcy in many months to come. As per various estimates, it
will take 15-18months to inoculate a sizeable population to reach a stage of
herd immunity against the Covid-19 virus.
On the positive side, the pandemic has
accelerated many trends that may help the cause of sustainable faster
development in the medium to long term.
There have been many events in 2020 that
must be taken note of by the investors. However, as a tine investor in Indian
assets, I would in particular like to remember the following eight for next
many years.
1. The Indian
government imposed a total socio-economic lockdown in the country in the wake
of the outbreak of pandemic from 25th March 2020. The restrictions
were relaxed gradually from June onward.
In my view, it is almost impossible to assess the utility and
true impact of lockdown exercise. We would never know, what could have been the
situation if a total lockdown was not imposed in March. It could have been
worse in terms of economic and health shocks; or perhaps the economic loss
could have been less pronounced, sans total lock down.
This episode however has further strengthened my already strong
view that the incumbent government is unpredictable. It can take decisions
having far reaching repercussions rather quickly; without adequate planning;
and without bothering about the immediate consequences in terms of human
suffering. I shall continue to incorporate this feature in my investment
strategy for midterm.
2. During the
lockdown, when the human activities and mobility were restricted to a great
deal globally, the nature attempted to reclaim its space. The instances of
peacock dancing on city streets, deer, sheep and even lions roaming freely on public
roads, air quality improving to “serene” from “severe”; visibility improving to
few hundred kilometers from few meters; children learning that the color of sky
is “azure” and not “pigeon blue”. However, within 15 days of unlocking, the
human reclaimed the entire territory from the nature.
Notwithstanding the enthusiasm behind sharing pictures of “pure
nature” on social media, it is clear that we have moved too far on the path of
self-destruction.
On the other hand, “work from home” and “digital meetings” have
been adopted as fait accompli by many businesses. This because it brings
immediate tangible benefits to both, the employer and the employee.
This leads me to conclude that any global agreement on climate
will not succeed unless it has immediate and tangible economic payoff for the
parties. The Paris accord, fails on this test, just like the Kyoto protocol. I
shall therefore not be looking for investment opportunities in Paris accord,
unless I see tangible economic gains for Indian businesses and consumers.
3. On 20th
April 2020, something happened in global commodities market, which was unheard
of. The WTI Crude Oil Future in New York crashed to a negative US$37.63 price.
This event, though rare, has added a new dimension to the risk management process;
option pricing methods; and trading strategies.
4. The benchmark
crypto currency “Bitcoin” has been vogue since 2009. Even though it was
accepted as a medium of exchange in many jurisdictions, it never gained wider
acceptance as legitimate asset like gold or store of value like currency. In
2020, most of the reputable global investors and strategists have accepted
Bitcoin as futuristic “store of value”, just like gold and USD. This acceptance
has come on the back of Bitcoin’s sharp outperformance vs precious metals and
USD. I believe that this marks the beginning of a new era on global monetary
system. Neutral digital currencies shall continue to gain prominence in global
monetary system in future. May be this prominence would diminish the dominance popularity
of gold and USD as global reserve currencies.
5. The year saw a brilliant thaw between the traditional enemies the Arabs and the Israelis. Some strategic initiatives were taken by Israel, UAE and Saudi governments to reduce tension in the region. This also saw Arabs increasing distance from Pakistan. I see this as a good omen. It may result in sustainable reduction in terror support and funding globally. However, this has pushed Pakistan closer to China. The tension at Indian northern, western and eastern borders may sustain and even increase in short term. More frequent hostilities at borders is something we would need to incorporate in our investment strategies.
6. Reliance
Industries, led by Mr. Mukesh Ambani managed to convince global business
leaders like Facebook and Amazon, and investors like KKR, Carlyle, GIC, ADIA
etc to invest in its digital and retail ventures. Global petroleum majors
British Petroleum and Aramco have also committed large investments in fuel
business of the company. If these investments are consummated successfully in
next 2-3years, we shall see many large Indian businesses gaining attention of
the global business leaders and investors. I shall be reevaluating some of the
large, viable but heavily indebted businesses from this viewpoint.
7. First protests
against the Citizenship Amendment Act (CAA and Shaheen Bagh) and now protests
against the three acts to reform the farm sector in the country have further
strengthened my belief that the mistrust between the ruling BJP and opposition
parties has breached the red line. The political environment shall get further
vicious, once the BJP tries to conquer the Forts of East (West Bengal and
Odisha) next year. I shall not be expecting political consensus on any issue
for next few years, for my investment strategy. Although with Congress
weakening further, getting majority votes in Rajya Sabha may not be an issue
for the government, nonetheless, the threat of reversal of contentious
legislative changes shall always prevail, should a united opposition manage to
dethrone BJP in 2024. (I agree that as of this morning this looks almost
improbable).
8. India recorded
its first recession in past four decades in 2020. Though many analysts are
terming it a technical recession due to lockdown; I would like to wait and see
the trajectory of recovery to conclude if a lasting damage has been caused to
the growth prospects.
