This article has been written by Mridul Tripathi, from Vivekananda Institute of Professional Studies. With the markets hitting a new low, this article lays down options for investment that look fruitful during the times of the present crisis and their analysis.
Table of Contents
Introduction
With the stock markets experiencing an all-time low, direct investing in an equity stock seems to be a bad choice. It can be said without a doubt that, it is one of the worst falls the markets have witnessed worldwide in three decades. Raghuram Rajan has opined that this is worse than the global recession of 2008-2009 as that didn’t result in a complete temporary shutdown of the firms and non-employment of the daily wage earners.
The silver lining to this dark cloud is that this trend of the markets hitting a low has been witnessed before during other past pandemic or epidemic outbreaks and the markets rebounded manifolds after the period was over.
Till this persists, the markets will remain volatile as they rely on the day to day news. With the news of the Coronavirus abating in most of the major countries such as Europe, sentiments in the market seem more upbeat than before and with the passage of time, things will only get better.
Good options for investment during COVID-19 crisis
At this point in time, one needs to carefully examine one’s options. If the stock prices are low, then one should not indulge in over-purchasing of these stocks and prefer sectors that are faring comparatively well even during these times. Heavy investments can only be gutted by such investors that have the capacity and resources to undergo short to middle term losses. The Indian markets show a jump in reaction to some of the liquidity injections as and when they are provided by the government.
Amongst other necessary steps, RBI has declared a 3-month moratorium scheme for banks to combat the phenomenon of some MSMEs turning up as NPAs by the time this lockdown period ends. A moratorium scheme is relatively a new concept in the banking sector of the nation. One is still unclear as to what the implications of non-payment of EMIs (Estimated Monthly Installment) would be and how it will impact the borrower in the long term.
The investors are being advised to focus on the long term returns while investing in any kind of security. Instead of direct stock investment, SIPs (Systematic Investment Plans) and STPs (Systematic Transfer Plans) should be preferred.
There aren’t many good options left when it comes to investing at the times of a crisis such as this but if we go along with the trends then we can identify the segments that people would flee to based on their behaviour and consider investing accordingly. The following are the sectors that have witnessed a surge and can be considered a good option for investment.
Insurance
The Life Insurance Council of India has recently declared that ‘Force Majeure’ will not apply to deaths occurring due to COVID-19. Force Majeure or Act of God means an unforeseen situation in which the company is not liable to pay any compensation or in the present case, the individual life insurance coverage. This has resulted in a lot of policy applications.
The Council has clarified that the pandemic deaths won’t be covered under the ‘Force Majeure’ clause. This step was taken to ensure that the customers aren’t abandoned during these days of doom. The direction has come forth in relation to both private and public sector life insurance companies. Provided that other necessary information has been provided truthfully in the agreement, the insurance cover will be paid in relation to COVID-19 deaths. This again proves to be a challenge as the process of medical examinations also entails necessary basic body check tests such as urine and blood tests etc. Now, in the present situation, the companies will be heavily dependent on past medical history and data which can turn out to be false in future, at the time of the payment of money. This will make the policyholder prone to be exploited by the insurance company.
An additional 30 day time period has also been announced by the Indian Regulatory Authority of India (IRDAI) for payment of premium in case of a renewal of the life insurance policy. The same extends to third party motor vehicle Insurance.
In the case of Medical Insurance, the government announced a cap of Rs 4500 when it allowed the private sector to start with the testing process. No cap was announced in terms of treatment of this disease. It becomes an expensive treatment as the patient slips into Intensive Care and for an uninsured, it might even become unmanageable.
There have been requests to the government authorities to step in to subsidise and provide a cap for these treatments.
Is it wise to buy an Insurance policy during the COVID-19 crisis
The problem that is bigger than the loss that will be faced by the Insurance sector is to figure out the ways to make insurance facilities accessible to the customers. The Insurance sector has seen an upsurge of almost 40% in the month of March owing to the CoronaVirus outbreak.
Physical assessment of the customers (pre-medical assessment) has been rendered impossible. Max Bupa has reported that it has started with the underwriting of the agreements over telephones and taking decisions on a case to case basis.
Online platforms such as policy bazaar are being heavily dependent upon when it comes to providing the services. While the companies are forced to revamp their method of providing the services, it can be said that a 100% online procedure would cut costs and increase convenience. But this also adds up an additional risk of the info being wrongly inferred by the customer.
As tempted as you will be to buy life insurance during these times, you are bound to face difficulties that you wouldn’t have faced a month back. With the loss mounting and the insurance claims piling up day by day due to the pandemic, the premium amount would be increased by the companies.
In the US, the companies are adding up riders in the agreements and coming up with additions of clauses in the new policies that would act as a roadblock and prevent them from paying up the insurance claim and in return the customers are at risk of being exploited. Companies inquire into the applicant’s travel history before the date of application and many such other procedural steps, result in the postponement of the application, if not downright rejection.
Food stocks
The Trade Promotion Council of India reported a 100% spike in the demand for food products as the markets grappled with the fear of facing unavailability of essential goods such as rice, wheat, spices and pulses in the coming months due to COVID-19. Fast Moving Consumer Goods Company HUL (Hindustan Unilever) is one of the companies that has witnessed an increase in the stock price due to the pandemic. Hindustan Unilever amongst its line of products also consists of daily essentials such as soaps and sanitizers.
It has penetrated in the rural market as well and the pandemic has impacted the urban markets more than it has impacted the rural ones. Also, the rural market is supposed to recover earlier than the urban markets once the pandemic blows over due to various government schemes and a good crop rabi crop season, therefore, investors seem to favour the companies that have penetration into the rural sector. Another such company is Dabur that has witnessed a jump in its stock prices.
All the companies that were into the business of providing ‘Essential Goods’ witnessed a surge in demand as people rushed to the stores to stockpile for the coming months in order to survive the lockdown.
Pharmaceutical Companies
The Pharma companies are at the forefront of the war. With demands of increasing the production of the tests kits, supply of medicines, products such as sanitizers etc, countries are heavily dependent on their pharmaceutical companies and therefore the sector has found itself in the midst of a crisis.
In India, the Prime Minister has offered an adequate supply of API (Active Pharmaceutical Ingredients) and urged them to include in their structure a smooth and convenient supply of drugs at people’s doorstep so that a rush at the pharmacies can be avoided. Till now Indian markets just like other nations were heavily dependent on China for the supply of API. But due to the surge in demand, stocks of many pharmaceutical companies have witnessed a rise.
Recently Pfizer saw a huge rise of 13% as there was news in the market that it has found some antiviral compounds that would help in the creation of a vaccine for the Coronavirus.
A personal investment like an online course
During the lockdown, a huge portion of the country’s youth is sitting at home. Where some schools and colleges have managed to switch to an online platform to impart knowledge through online lectures and distributing e-materials to the students, students find themselves with extra time on their hands due to relaxation in the daily routine.
Online course providers help people garner extra skills. As people are spending most of their time at home, they might invest it in learning how to play a new musical instrument or how to cook. A famous platform such as masterclass that provides direct lectures by experts in a respective field can ponder upon what strategy they should adopt in order to make the best out of the opportunity. Should the prices of these online courses be lowered to garner more traffic or an increase in the prices would profit more?
There is an untapped market on the web that can see a jump due to this paradigm shift in the method of parting knowledge.
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Other Companies
Here is a list of some companies whose stock prices shot up other than the companies mentioned above:
- Global consumer goods companies like Johnson and Johnson and Procter and Gamble.
- Entertainment services providers like Amazon Prime and Netflix.
- Gaming companies such as Activision Blizzard and Take two Interactive.
- Companies that help in making working from home an easier task such as Zoom Video Communications.
- Companies that were into the door to door delivery of goods and were given sanctions by the government to continue their services such as Big Bazaar.
Conclusion
As volatile as the markets are today, one can only wish for this storm to pass. Investment decisions have to be made extremely judiciously as some have suggested that the barbell strategy should be adopted while investing in the markets.
A barbell strategy suggests investing in both high risk and absolutely no risk securities at the same time while avoiding the middle road. This can only be done by investors that can handle such risks, therefore some have advised the investors to not invest during these times and wait for the markets to stabilise.
Questions such as for how long will this period last cannot be answered but a deep study of the companies that enjoyed the upsurge due to the pandemic can reveal the answer to the question if they would last till the post corona normal. If one has to invest, as limited as the options are, the decision should be made after a deep analysis and with a good strategy.
References
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