Have We Seen This Before?

Businesses across the globe are stressed, be it aviation, hospitality, tourism, automobile, Oil, etc. Rating agencies are working extra hours to keep a tab on companies’ liquidity situation. Corona is having its play on the economy. India’s GDP this financial year will either be flat or negative….. And the list goes on.

In the next few weeks, we are going to get inundated with such news flow. And believe you me, this is part of the journey, same was the narrative in 2008-09, 2000-01, 1998, 1992. That is how all economic downturns are. 2008-09 Lehman brothers, General Motors, Royal Bank of Scotland, Merrill Lynch, were some of the titans which collapsed, and the list goes on, its unending. More than 50 small businesses use to close each day in the UK, in 2008-09. The pain was unimaginable. So was the dot-com bubble burst in 2001-2, NASDAQ tumbled over 76.81%, blue-chip companies like Intel, Cisco lost over 80% of their market value.

(https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_during_the_Great_Recession) List of financial institutions which busted in 2008-09

As this news unfolds, we are bound to panic and be in fear, with a thought looming that this is the end. And the reality is: A new chapter begins from here. Fundamentally weak companies will collapse and those with prudent financial management will stand tall. Sectors most impacted from covid-19 are tourism, aviation, hospitality, in 2008-9 the tide was against Financial Institutions, 2001 was a dot-com bust. Each time there was a reason for economic strain, as in this time its lockdown due to covid-19.

In my recently conducted webinar, on 14th April, with a bunch of 70+ SMEs, owners and MDs. I started with this question – Where do you see your revenues in 2023. Double from current levels or half of it. The reply was thumping, over 93% said double from the current level, 7% were not sure. Similarly, for research’s sake, you may pick up any company from NIFTY 50, and you shall not find more than 10% of companies, whose revenues will be worst than current levels, in 2022-23.

So, if currently, we are in the worst situation or near worst, the future has to be bright. Today we are still better off than in 1991 when the country pledged its 66 ton Gold to UBS, Bank of England, Bank of Japan to meet its import bills to garner less than a billion USD.  “ Optimism is the faith that leads to achievement.

In the year 2008/2013 when the market cap to GDP ratio was below 60% (green) Sensex delivered a thumping 15%-17% Compounded Annual Growth, every year for the next 3 years. In absolute terms, it’s over 50% returns in 3 years. Moreover, smartly managed diversified funds Mutual Funds delivered over 90% returns in these 3 years.

In mid-April 2020, this ratio has again hit the 60% threshold, and we are smart enough to extrapolate results from here. Nevertheless, the journey will be painful and not without some more volatility, some more blood on the street. But as John D. Rockefeller Say-
“The way to make money is to buy when blood is running in the street.”
-John D. Rockefeller. (American business magnate, considered to be the wealthiest American of all time and the richest person in modern history.)

Few years down the line, 2020 and pandemics will be in history books and the media will be full of stories on those who bought cheaply made fortune. Don’t get carried away, just stick to your asset allocation and you are home.

Yogendra Shah – Head Advisory

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