In December 2019, what started in a town in China has in the next 3-4 months disrupted the entire world turning out to be a global pandemic transforming it into a vicious attack on humanity. Today over 213 countries have been impacted by this pandemic and a respite seems like a distant dream.
Covid-19 has locked down large economies in the world like the US, UK, Germany and back home in India we have been forced to stay at home with the new norm of Work from Home (Wi-Fi – the new king).
Globally the pandemic has so far led the virus to infect 3,221,044 people. The USA, unfortunately, has been the most impacted by the pandemic with 1,064,000 plus infected citizens with the death toll at 61,669. It most certainly is a cause for grave concern and it remains to be seen how terrible will the ultimate fall out of this catastrophe be.
In India, due to the lockdown, unemployment rate for the week ended 26th April has reached 24% up from the 7-8 % normal it used to be. The immediate impact will be felt in consumer spending led by a negative rush of fear and anxiety concerning the future and thereby causing a fall in consumer demand for products and services. Consumers are expected to spend only on essentials.
Corporates have started to face demand-side challenges with falling consumer spend thereby leading to a vicious cycle of cost cuts by them. The supply-side challenges are not far behind, availability of raw material due to the curtailment of inter-state supply of goods and labor concerns with migrant labor returning/planning to return to their natives.
Lower revenues due to the demand and supply-side challenges will mean having to operate with a lower cost regime. This will further drive companies to effect cuts in wages/salaries. As also companies should brace themselves for delayed collections from clients who are stranded with lower recoveries due to subdued sales.
The need of the hour
The need of the hour is to:
- Conserve Cash – Cash will be king and the corporates with cash in their coffers will be the kings when it comes to negotiations on future deals.
- Re-negotiate debt, and try and seek moratoriums – Its best to meet bankers and re-negotiate repayment schedules seeking a moratorium on EMI’s without impacting interest costs.
- Re-look organisations structures and eliminate flab – A dire need to now relook at people requirements afresh given the drop in revenues and evaluate the structure needed to service the reduced demand.
- Revising compensation structure and delaying increments – A temporary downward cut in compensations is inexorable. It’s better to retain trained talent rather than resorting to knee jerk reactions (Pink Slips) for short term gains.
- Eliminate discretionary spending – All discretionary spending like conferences, travel, and training, entertainment and welfare costs will need a re-think.
- Continue WFH for a further period – It will help us manage social distancing as well as cut down on costs or should it be the new normal is the question.
- Re-negotiate fixed costs – Re-negotiate all lease agreements with landlords and relook at workspace requirements afresh.
- Hold on to Capex decisions – Revisit your immediate Capex plans and expend only what’s extremely important that’s impacting productivity. Also, look at leasing options for the interim.
Opportunities that lie ahead
Remember the famous quote from the most famous comic actor of our times Sir Charles Chaplin “Nothing is permanent in this wicked world – not even our troubles”. The world is looking different and WFH has become an adaptable new way of functioning. The positives so far amidst the current gloom is not having to do an arduous couple of hours (if not more) of daily commute. Things from here will only be better, but wait whether it has bottomed out yet is the question that begs an answer.
On a more serious note, countries like India will see huge opportunities in the near future. A few of them include:
- In the equity investment space good value stocks are available to be picked up at never before lows, but one never knows if the market has bottomed out.
- Now that more and more worldwide conglomerates are contemplating moving outsourced manufacturing out of China it presents an opportunity for the Indian companies to become a manufacturing hub.
- The country is expected to recover fastest from the epidemic and hence an early restart will bring an advantage to the Indian economy.
- The rural economy hasn’t been impacted much and hence the demand will be driven by the rural economy to bring about the revival.
- The pharma sector is already experiencing opportunities with developed countries like the USA depending on India for their key medical supplies and drugs.
- India is also expected to be a global hub for medical tourism due to its affordable medical services.
- The fall in the prices of crude oil will also help bring down the import bill of the country.
- India will also become the most preferred destination for overseas direct investment in new age unicorns in the start-up space.
- Facebook’s investment in Reliance Jio is just the beginning of things to come.
In conclusion let’s hope that this pandemic ceases to exit earlier than expected so that we can look at newer, brighter, fresh beginnings.