The Indian Economy in a nutshell – 2020
Dear investor,
2020 has been an unfathomable year, tough to summarise and one we can pray to never see again. We saw a pandemic affecting the globe and millions of people dying because of one country – China, where it originated. Now, due to unfair trade practices, it is being isolated by the US, India and other countries.
As Covid came into the country, the Indian government imposed a complete lockdown in March, curbing economic activity and industrial production, while restricting movement between states as well.
In a bizarre world, citizens found themselves living in a state of emergency – scrambling for basic home necessities, and basic food grains, which were available at restricted timings in the stores. All in the mean while the fear of possible death loomed in the air from this virus, and hospitals were rejecting patients at the doorstep.
As the elderly had to take extra precaution, youngsters suddenly found themselves in a career halt as jobs were hit. College graduates had to worry about placements. Being safe was the only priority.
Sector wise 2020
Travel was the first to get hit, with Warren Buffet pulling the plug on his 3 investments in airlines. He cited that he had no visibility on their recovery given Covid. Interestingly, many of these airlines have revived and are doing well. Domestically, all carriers were grounded and trains stopped plying. Air traffic movement in the country was suspended on March 25 this year to contain the spread of Covid-19. After two months of complete lockdown, the government resumed flight operations in May.
India’s domestic air passenger traffic continued to improve on a monthly basis in November, but declined by more than half on a yearly basis. According to the Directorate General of Civil Aviation (DGCA), 63.54 lakh domestic passengers travelled by air in November, which was 20.54 per cent higher than the air passenger traffic recorded last month. Domestic airlines flew 52.71 lakh and 39.43 lakh passengers in October and September, respectively. The domestic air traffic, however, dropped 50.93 per cent as compared to corresponding period last year.
In the finance sector, banks put a moratorium on interest on loans for those months to give ease to loan receivers but continue to bleed with high debt, NPA problems and poor management. Public sector banks are in deep trouble. Besides bad loans, they also tend to have a higher debt to equity ratio and low returns. NBFC’s like Muthoot whose loan business is dependent on the price of gold have done well and given good returns since March.
MSME sector suffered, with no loans available and economic shut down and no customers. MSME sector in India is second largest employment generator after agriculture, and acts as a breeding ground for entrepreneurs and innovators with considerable support in strengthening the business ecosystem. The estimated number of MSMEs in India is 63 million and employs 110 million individuals. Survey reports have shown that disruptions caused by the Covid-19 pandemic have impacted MSMEs earnings by 20-50%, micro and small enterprises faced the maximum heat, mainly due to liquidity crunch.
Unemployment figure- More than 12 crore workers across industries lost their jobs as companies tried to cut costs and improve their bottom line. Almost 75% of the 12.2 crore people were small traders and wage-labourers.
FMCG is one of the few sectors (ITC, Nestle etc) to have performed in a stable manner in terms of returns post lockdown, since the consumer has been spending mainly on essential items –Need for essential commodities continued throughout covid. Larger purchases were delayed.
Real estate prices dropped drastically during Covid as people preferred to delay major purchase decisions in these extraordinary circumstances.
The IT sector did well on a strengthening dollar and greater dependence on technology (73 Re/1$). Pharma manufacturers saw a growth in consumption of pain killers, malaria drugs and other initial prescription medications for Covid.
Diagnostic centres with covid testing facilities did well for example Dr Lal Path Labs, and the medical industry was under huge stress to manage this challenge. Overall, numerous medical professionals risked their lives to keep people healthy.
Work from home changed the facets of the edu-tech sector, educators were forced to teach and think from home without a classroom.
Crude oil remained soft (West Texas Intermediary even went into negative territory in the USA, when supply overshot demand) but grew towards the year end after OPEC cut supplies and came to an agreement.
Cinemas, theme parks, entertainment sectors and even malls struggle/d but are slowly resuming some activity as people began to venture out and the number of new cases dipped.
Markets
March saw the indices crash, but with resumption of economic activity and interstate movement after some time we have only seen the market move upwards since then. NIFTY is now sitting at 14k, nearly 2x since March. The government came out with a stimulus package to enable more liquidity in the market and despite many thinking that there should be some direct correlation between GDP growth in a emerging economy like India and the indices, it didn’t happen. Our economy contracted but the market grew positive, and continues to.
Globally, the world reeled under the pressure of the virus. The Fed decided to continue on its strong bond buy back program, infusing money globally. FII money was enough to cloud the reality that the Indian economy was weak fundamentally, and eventually the hope of the vaccine caught the markets, which propelled optimism further. The US elections were held in the middle of the pandemic; Joe Biden won the election, and is president – in – waiting. He has also received his Pfizer vaccination J
Meanwhile, the wealthy got wealthier – India’s richest man, Mukesh Ambani, has earned Rs 90 crore every hour since the March lockdown, as per the IIFL Wealth Hurun India Rich List 2020.
Conclusion
Zoom now is the safest way to celebrate your wedding, besides being for work meetings, birthdays and general catch ups (Does anyone remember Skype?). Jobs became work from home – a trend which I see only growing even post covid. Even home delivery of food was not possible initially with people entering into the canteen business, each visit from a neighbour or friend was a scare. The hand sanitizer and mask requirement meant suddenly that companies like Deepak Nitrite did well. People started knitting masks at home. People made recreational clubs – Book clubs, investment clubs… some of which I am a part of and enjoyed thoroughly.
Sports events were delayed across the globe, or occurred under special circumstances, like the IPL was held in UAE and the tennis grand slams without crowds.
It was a year to understand what you truly value in life, and facing something tough together. With the vaccine soon to be distributed in India, let’s keep our fingers crossed.
Best,
Ud
Corporate highway 