The novel coronavirus aka Covid-19 has been one of the most unprecedented events in recent times which has had a rather disastrous impact on the global economy. In spite of the advancements in healthcare and technology, there was little the world could do to contain the spread of the virus. While the situation in some countries has improved marginally, the news of the second wave hitting geographies where the curve was flattened to a large extent is making news.
Investment in times of uncertainty
This news signals more uncertainty in the economy, business and other aspects of life. Situations like these call for a reevaluation of one’s investment philosophy in the short and medium-term for investors of all kinds. In any kind of investment, whether it is listed securities or startups the core value of a company depends upon its cash flow. However, in case of some startups, there is a considerably long gestation period before investors can see tangible returns.
In the current scenario, investors prefer regular cash flows and investment options that are less risky. Hence, markets have witnessed a temporary shift to essential goods and services and more profitable avenues in the short and medium-term. This is where the investments have spiked fairly. These sectors and companies are expected to give better returns than those with where one needs to wait long term. This trend is expected to continue at least till such time that there is clarity on the timeline of the availability of the coronavirus vaccine. Hence, it is recommended that investors make the shift to such profitable and sustainable models that will give better returns in the short and medium-term.
There are multiple new opportunities in the market even in the current times dominated by Covid19. Depending upon the current business model of the company, many firms have diversified to an alternate business stream to survive and thrive. Many companies in the healthcare sector have shifted to covid related products and services and goods and services companies have shifted to online delivery models. Investors have to identify such companies where the shift in the business model has worked in the current scenario. Investment in such companies will yield good returns.
Companies in the current non-essential sectors like aviation and hospitality have been adversely impacted and their share prices have almost hit the rock bottom. These stocks present ample opportunities to investors who are ready to wait long term. A long-term investment in these stocks, for say more than 3-5 years can provide excellent returns since the current pricing is substantially low.
Similarly, in startup markets, companies, where the business is temporarily on hold, can be negotiated at a lower valuation and these will yield better returns once the impact of the virus subsides. Many startups that have long term potential but are currently short of cash, are available at lower prices. India also has a grey market for such large unicorns and a price point is fairly established in such markets.
Real estate as an investment option has also seen some changes with commercial real estate taking a hit ever since the work from the home model has become the new normal. Many companies have reported a reduction in future space requirements and investors are wary about prolonged vacancies in their real estate investments. However, some believe that the work from home model is transient and working from offices will resume soon. However, unless the value proposition is great, investors should ideally wait and watch in the current market situation rather than investing too early and then regretting it. Many real estate investment trust (REIT) companies/sponsors have offloaded some stocks recently until there is clarity on the uncertainty created due to the virus. Therefore, the current pricing of REIT companies is better for investments than what it was in the pre-COVID days.
There is another theory of contrarian investors who make bets when the markets are down. This is another interesting type of philosophy which focuses on long term returns of currently hit sectors. Travel, hospitality and retail are the sectors which will bounce back very soon and have a promising long term potential in terms of return. Since the markets are stressed, corporates also have good options in buying stressed assets and are investing in companies looking for M&A opportunities in the stressed economy. Stressed and turnaround funds are working very actively to pick up the right assets at the right prices. For institutional investors, this is another good opportunity to invest and get higher risk-adjusted returns.
To summarize, a few short-term and medium-term strategies might need changes depending upon the current investment styles. Long term investments are less likely to get affected. For cash-rich investors, there are many opportunities available in the current market across categories at lower prices than ever before. That said, a cautious approach is required since the economy can take some more time to get back to the pre-COVIDlevels.
(The author is Niraj Bora- Founder of Surmount Business Advisory)
Disclaimer: Views expresses are personal
(Edited by : Pranati Deva)
First Published: IST