Unusual are the times! 2021 to 2022… Let’s be prepared

The beauty of a wonderful piece of writing or any creative work for that matter is that, it amazes you to an extent that freezes your thoughts for some time. “Missing” – a year end note from one of the most competent money managers in the Industry did exactly that, when I started penning one 10 days back. It engulfed my thoughts so much that I got trapped in a world where penning my thoughts sounded the most difficult task. It was unusual.
 Chennai witnessed one of the wettest years in history.  It rained non stop for a little more than 5 hours day before yesterday. Unusual again. We have seen superheroes with masks but not a family member or a neighbour wearing one on a daily basis. Unusual isn’t it? NIFTY mid cap index and NIFTY small cap index delivered annual returns of ~45% and ~58% respectively. This too is unusual! 

When you go through this, it may be the first day of new calendar year 2022! This is not a prediction for the year ahead. Let us leave it to the erudite! These are random but worthy thought bits packed in a single but long note resembling a ‘Madras Mixture’.   

High conviction & low expectations : In the epic Ramayana, there is the story of Shabari who was taken as a disciple by Sage Matanga. 

One day when Sage Matanga was very old he called his disciple Shabari and said “My Daughter, I’m leaving this body, is there anything you want me to do for you?” Shabari prayed “Lord take me with you to the highest abode you are going. I cannot live without you”. Sage Matanga said “One day Lord Rama will come to see you, until then stay alive, after that you can come to me”

Shabari stayed alive in anticipation of Lord Rama. She would get up early morning every day and go to the forest to collect the berries to serve Lord Rama. She didn’t know when Rama would come. She would go to the forest and collect berries every day. In that manner she spent many years. It should be recalled here that   Rama’s father Dasaratha was not even born then. This is the best example of high conviction or strong belief. The stock market has the capacity to test your patience and belief and this year could be one!

From the lows of March 2020, the stock market witnessed a phenomenal run for the past 21 months. Barring a few, most of the mutual fund schemes delivered returns that were way above the long term averages. So was the case for individual stocks. Many stocks had turned multi baggers. Investors who were patiently waiting since 2018 had a litmus test in the month of March 2020. The tenacious ones had a rich haul in 2020 and 2021. The faint hearted left way too early and the greedy ones joined the party too late! Historical data suggests that market returns are not linear. Will this bull run continue in 2022? (We should check with the erudite!). As an investor, I have set my return expectations low for 2022 as compared to the previous two years. I would highly recommend you to keep your return expectations low. Having said that the focus should be on the next 5 to 10 year period that offers huge potential for good returns. In the previous decade, there were 4 calendar years when the returns were either negative or less than 8%. Despite that, my own retirement portfolio of mutual funds delivered 18.20% compounded. Stay high on conviction for the decade ahead and low on return expectations, for the year ahead. 

An important lesson : In April 2020, we all witnessed the unusual winding down of 6 debt schemes by Franklin Templeton. A fund house that was trusted by many since the 1990s had many questions to be answered. From the date of announcement till this date, more than 100% of the money got repaid. There were many narratives carried out by both the conventional media and the new age social media. Many deviations were believed to have been taken by the fund house. Lots of blame game happened.  Front pages of popular business dailies carried daily coverage for some time. With money repaid, now no body is interested in the narrative of how much money was repaid. The most important lesson for you and me as investors is media does not want your financial well being. They want some hot controversial stories that can bring more readers or viewers. We should not stop reading such stories but take the firm decision of not falling prey to such stories before getting to know the facts through a trusted source. 

Money making is not that easy : If you had invested in a few IPOs in 2021, you would have seen gains to the tune of 60%, 80% or more than 100% too. I clearly see a trend of increased allocation by investors to IPOs and stocks. If adequate study is made and invested, there is nothing to be worried. Else, throwing caution to wind and going based on one or two years of experience is like believing the short term is likely to prevail in the long term too. This is very dangerous and money making in the market is not that easy. Asset allocation, is the key to achieving your medium and long term goals. Get a grip on the evils of GREED and FEAR.

Are you recommending crypto? This is a question frequently asked these days. As disclosed at the beginning, these are unusual times and tough to answer such questions when this space is not yet regulated in the country. In the absence of a regulator what should we do when something goes wrong is a question that remains unanswered. Hence, I am not personally investing. This does not mean I will stay away forever. A regulator gives me the comfort and I do not take risks that I do not understand in full. I am fine investing in an asset with reasonable returns of 15% compounded with known risks, than something which promises huge returns but more risky. My fight is not with the greedy ones but with inflation. Hope you too are not fighting the greedy!

It is time to lay bricks one by one. While many are focused only on the wall, the attention given to laying one brick at a time ensures the wall is built strong. Investing is a game that tests our patience in the short term & conviction over a longer term. If we are willing to be tenacious and take the support of a well wisher, the journey will definitely be an enjoyable one.

Large Cap Equity Mutual Fund Schemes – Tracking the Analysis -II

For the previous posts to understand the analysis, the links to be used are given below https://atomic-temporary-140880717.wpcomstaging.com/2020/05/13/large-cap-equity-schemes-tracking-the-analysis/


I have taken 3 periods to track the study done earlier. One year, returns since March 23, 2020 (Black Monday ? :-)), returns since April 17, 2020 (the day the analysis was done). Here is the latest update… It is interesting to note that few funds protect the downside while others capture the upside… More on this at a later point of time !!!

“Predictions” – Should we learn to predict ?

As human beings we have the unending urge to know the future. Many practitioners of predictions thrive because of our urge to know “what next”. Stock markets are no different when you talk of predictions. Many of my friends believe the predictions given by the specialists and take an effort to convince me to buy such ideas. A couple of weeks ago, I was told of a particular level NIFTY would break on the lower side and the individual said he was waiting to buy only if that happened. A few keep saying that it would take minimum three years for the economy to turn around post Covid-19. There are those who are very bullish too, and I am not ignoring them just because they are optimists !

Should we believe such predictions ? Or should you and I start predicting ? Especially as investors in the equity market shouldn’t we be worried about what future holds ?

In September 2011, Morgan Housel thus wrote on predictions…

We live in an unpredictable world, but this doesn’t stop experts from making divine forecasts.  Predictably their collective track records stink.  As Philip Tetlock, a U.C. Berkeley professor who studies expert predictions, put it, most experts could be beaten by a “dart throwing chimp”.  Yet we listen to them.  Intently.  With confidence.  Here are three predictions about the economy that never came to pass.

1).  1980s: Japan will take over the globeMichael Crichton – – not exactly an economic analyst, but widely read nonetheless – wrote in 1992 that “sooner or later, Americans must come to grips with the fact that Japan has become the leading industrial nation in the world.  The Japanese have the highest employment, highest literacy, the smallest gap between rich and poor.  Their manufactured goods have the highest quality.  They have the best food.  The fact is that a country the size of Montana, with half our population, will soon have an economy equal to ours.”

It never did.  These predictions weren’t just wrong.  They were the sheer opposite of what happened. It is now the most indebted industrialized nation in the world.

2). Every decade for almost a century:  The world will soon run out of oilIn 1914, the U.S Bureau of Mines predicted American oil reserves would be depleted in 10 years.  In 1939, the official prediction was 12 more years before the wells ran dry.  In 1951, the Department of Interior warned that we only had 13 years left.  Over and over again, experts have predicted the end of the oil.  Over and over again, they’ve been wrong.  

3).  2001:  The national debt will be repaid within a decadeIn 2001, President George W. Bush set a goal: “I hope you will join me to pay down $2 trillion in debt during the next 10 years”, he said.  Others were even more optimistic.  It was projected that the nation would effectively be debt-free by 2009.  But this never happened.  

This isn’t meant to point fingers.  It’s to accept that the experts whose predictions we rely so heavily on are fallible people operating in an unpredictable world.  The appeal of predictions is natural – who doesn’t want to know what the future holds? — but the collective track record of expert judgement speaks for itself.  Experts have been wrong in the past.  They’ll be wrong in the future.

I had highlighted this in our newsletter in May 2019 https://mailchi.mp/055d0ad805b3/elections-markets-predictions-you

This does not mean that there were no correct predictions. Google “successful predictions” and you get lot of links right from Nostradamus to the economic predictions of Alan Greenspan. What should you and I do then ?

Nassim Nicholas Taleb says “Do not predict but prepare”. He elaborates by saying “throw all your assumptions of yesterday and start afresh every day by asking right questions”. Ask whether the assumptions you held yesterday still hold true. Revisit the decisions of yesterday and check whether they need to be changed or not. That seems a better way to get ahead in life, isn’t it ?

If markets were to fall now, what would be the reasons ? Let us do a short thought experiment based on past data. Markets would fall if any one of the following or multiples were likely to occur…

  1. A high impact, non-financial event like war, elections, extreme weather, pandemic to name a few (that impacts economy in the medium to short term)
  2. Release of economic data that is confirming a gloomy picture ahead
  3. FIIs selling
  4. Quantitative tapering like what happened years after global financial crisis
  5. Liquidity squeeze
  6. Poor monsoon
  7. Other political reasons
  8. Global impact of a bad news in developed economies

Every day ask yourself whether any of these is a probable one. If not, keep watching the predictions of experts but do not act on them. I am not saying these are the only 8 triggers for markets to fall. Create your own list and keep building them based on your experience.

Conclusion : The world is more complex than what we think of. Nostradamus, Warren Buffett, Sachin Tendulkar are exceptions. We should not generalise based on exceptions. Many predictions would have come true if not with precision. But many more failed. Rather than relying on predictions of others, we should own our decisions by asking critical questions. If you are an investor, ask these questions and get them clarified with your advisor. If you are an advisor, ask these questions with your mentors and get insights. If a few could predict everything, life would be different !

The decade that was… Large caps – A perspective – Part 1

“What goes up must come down”

– Sir Isaac Newton

The above chart just reminds us of Newton’s quote. This chart adds “vice versa” to Newton’s quote !

A decade is for sure long enough to analyse performance of a mutual fund scheme. The challenge with every analysis is to avoid confirmation bias, as we tend to move towards perceptions we already hold. Hence, to have a better understanding of the data in hand, I thought it would be better to observe first and then allow sufficient time to come up with a better analysis. Hence, this is going to be a two-part article with key observations initially and interpreting the observations would be done a bit later.

Key Observations :

  1. The top 6 schemes this calendar year (YTD) as on 29th of May 2020, are JM Large cap, Canara Robeco Bluechip Equity, BNP Paribas Large cap, Axis Bluechip, Invesco India Large cap and IDFC Large cap
  2. Schemes worth watching (meaning reasonable downside protection and medium upside capture – less of dark red in the image) are ABSL Frontline Equity, Canara Robeco Bluechip Equity, Edelweiss Large cap, ICICI Pru Bluechip, Invesco India Large cap, Kotak Bluechip, L&T India Large cap, Mirae Large cap & UTI Mastershare. These are not recommendations but observations
  3. Consistency seems to be a challenge except for a few schemes. Let me share more on this in the analysis part
  4. A two or three year of under performance gets reversed for popular schemes, but would be testing the patience of every investor. How does this impact goals is a different question, though
  5. Management changes, Fund Manager changes, Categorization all have impacted performances
  6. Though the benchmark would be irrelevant at the beginning of the decade, 17 out of 27 schemes have beaten benchmark returns in the year 2019 (CY)
  7. A few not so popular schemes (brands ?) have shown reasonable performance over the years by not losing money too often

Investor returns and investment returns are not the same. Let me dig more in to this data and come up with an analysis shortly.

Mid cap funds – An analysis

Scheme characteristics : As per the categorisation and rationalisation of mutual fund schemes prescribed by SEBI, mid cap scheme is one where “minimum investment in equity & equity related instruments of mid cap companies-65% of total assets”. In general, an open ended scheme which predominantly invests in mid cap stocks. Mid cap universe is also defined clearly, which is 101st – 250th company in terms of full market capitalisation. At present there are 25 mid cap schemes, open ended, available for purchase. I have excluded a few schemes which are less than 50Cr in size, intentionally.

As I did in the previous analysis, the objective is to identify funds and classify them under four categories namely a) Likely out performers b) Likely challengers c) Likely outliers & d) Watchlist.

Sl NoLikely out performersLikely challengersLikely outliersWatchlist
1Axis mid cap fundBNP Paribas mid cap fundMotilal Oswal mid cap 30 fundL&T mid cap fund
2DSP mid cap fundInvesco India mid cap fundSundaram mid cap fundHDFC mid cap opportunities fund
3PGIM mid cap opportunities fundTata mid cap growth fundICICI Prudential mid cap fund
4UTI mid cap fund

Axis mid cap fund : is a 5098 Crore sized fund, with 62 holdings and 36.5% exposure to top 10 stocks. Cash held as on Apr 30, 2020 is very close to 14%. YTD, this has fallen the least in the category. This fund delivered 11.33% in the year 2019 and remained on top. In the year 2018 this was the only fund to deliver positive returns in the entire category. Excellent downside protection is seen over 1 and 3 year periods. PE and PBV are costly but long term expected earning is reasonable. Portfolio seems well positioned for out performance. Right choice for defensive mid cap investors.

PGIM India mid cap opportunities fund : is a 145 Crore sized fund, with 52 holdings and 40.61% exposure to top 10 stocks. Cash held as on Apr 30, 2020 is just 3.79%. YTD, this has fallen less in the category. This fund delivered 3.57% in the year 2019 and remained one among the few to deliver positive returns. Reasonable downside protection is seen over 1 and 3 year periods, but expected to be volatile. PE and PBV are reasonable and long term expected earning is looking very attractive. Portfolio seems well positioned for out performance. The right choice for aggressive mid cap investors, especially considering the fact that this carries the best upside capture in the last one year among its peers. The size of the scheme being small has the potential to deliver big.

DSP mid cap fund : is a 6487 Crore sized fund, with 49 holdings and 34.87% exposure to top 10 stocks. Cash held as on Apr 30, 2020 is very close to 9%. This fund delivered 9.21% in the year 2019, which was a good recovery from an average performance in the year 2018. Very good downside protection is seen over 1 and 3 year periods. PE and PBV are reasonably valued and long term expected earning is reasonable too. Likely to keep up its performance. Does the growing size a challenge ? Over time, we would know this better

Invesco India mid cap fund : is a 747 Crore sized fund, with 46 holdings and 33.58% exposure to top 10 stocks. Cash held as on Apr 30, 2020 is very close to 4%. YTD, this has fallen in line with the category. This fund delivered 3.8% in the year 2019 and remained consistent taking in to account its 2018 performance of (-5.27%). With an excellent downside protection (one among the top 4) over 1 and 3 year periods, this fund just ensures to capture the upside too. PE, PBV and Long term expected earnings are reasonable. Portfolio seems well positioned for consistent performance. Ideally suited for those seeking long term consistent returns in the mid cap category.

Tata mid cap fund : is a 723 Crore sized fund, with 47 holdings and 37.3% exposure to top 10 stocks. Cash held as on Apr 30, 2020 is very close to 6%. YTD, this has fallen in line with the category. This fund delivered 6.5% in the year 2019. Good upside capture with reasonable downside protection is seen over 1 and 3 year periods. PE and PBV are relatively costly but long term expected earning is excellent.

Motilal Oswal mid cap 30 and Sundaram mid cap could take the limelight, the former with concentrated bets and the other with a longish portfolio. Watch list is a category of mid cap schemes with interesting portfolios that have done well in the past and cannot be completely ignored. Keeping track of the performance of these schemes is essential to arriving at a decision to buy, hold or exit.

Disclaimer : This is not a recommendation to buy or sell a fund and this should be read as an analysis. Investors are advised to consult their financial advisors to check the suitability of these schemes for investing based on their investment agenda. Performance data as on 15th of May 2020.

Large Cap Equity Schemes – Tracking the Analysis


The above analysis was done in April 17, 2020. How the schemes have performed since then ? Here are a couple of snapshots. The idea is to check how the analysis played out.

IDFC Large Cap & PGIM India Large Cap have done well during this period. Whereas BSE 100 has lost close to 1% in the same period, Likely Out performers, Likely Challengers, Likely Outliers in our list have done reasonably well to ensure better returns than BSE 100. Let us find out how they fare in the long run, especially with the stimulus packages being announced…

Large cap equity schemes an analysis :

Scheme characteristics : As per the categorisation and rationalisation of mutual fund schemes prescribed by SEBI, large cap scheme is one where “minimum investment in equity & equity related instruments of large cap companies should be 80% of total assets”. Large cap universe is also defined clearly, which is 1st to 100th company in terms of full market capitalisation. At present there are 30 large cap schemes, open ended, open to new investments.

The objective of the analysis is to list out schemes under broad categories a) Likely challengers b) Likely out performers c) Watchlist & d) Likely outliers. The difference between likely challengers and likely out performers is very little and predominantly lies in previous year returns. It should be carefully noted that these are not recommendations for investing and investors are expected to consult their financial advisors for right advice and action.

The analysis is based on parameters that are broadly classified as a) pertaining to past performance b) future estimates and c) current valuation & other metrics. It is a well known fact that past performance alone is not an indicator for future. Similarly, metrics used to get an idea of how the portfolios would shape up are mostly estimates. No single parameter would provide us the direction towards a decision to buy, hold or sell. It is the combination of all these parameters that are used to arrive at a decision.

Ratios pertaining to past performance : The following were used to get an idea of how the schemes delivered in the past. These are not the only ratios that are important. There may be different methodologies to analyse which may have merits. I do not claim that this is a superior model. Selecting schemes is not a science neither an art. It is a craft which gets better with experience. Let us take a look at the ratios used – Downside capture ratio (1 year period), Downside capture ratio (3 year period), Information ratio (1 year period), Information ratio (3 year period), Current and previous two calendar year returns.

Rationale behind using above ratios : Investors in general focus on short term performance and lose out on long term gains. This creates “behaviour gap“, the gap between fund returns and investor returns. To address early untimely exits from a scheme, funds with low downside capture ratios have to be chosen. Information ratio is a better measure than Sharpe ratio. Information ratio, measures the fund’s performance relative to its benchmark and adjusts it for the volatility in the dispersion between the two. Calendar year returns provide more clarity and is a better measure than CAGR, in my opinion. By looking at CY returns, you are in a position to understand the ups and downs easily than CAGR which could be misleading for laymen.

Current valuation parameters : I have taken PE (price to earnings of portfolio), PBV (price to book value of portfolio), PC (price to cash flow of portfolio), cash calls, market cap wise break up, total number of holdings in the portfolio and weightage of top 10 stocks in the portfolio.

Rationale behind using above : PE, PBV and PC provide an idea of how costly or cheap the portfolio is currently. Cash as hedge is a strategy for a few but in my opinion, lower the cash levels better rating would be given as money given is for equity exposure. Asset allocation is the responsibility of the investor / advisor as the case may be. So, cash weightage in the portfolio is important. The total number of holdings in the portfolio too is critical for delivering performance. Long tails and extra diverse portfolios could end up being mediocre performers.

Future estimates : As we all know this is the uncertain part. Despite all right ingredients, a dish could not turn out well at times ! Like cooking, here also uncertainty prevails. Long term earnings (3 year) estimate, Book value growth and expected dividend yield of the portfolio are taken based on estimates. Future performance of any portfolio depends on long term earnings, dividend yields and book value growth. In addition to these, positioning the portfolio across prospective sectors depending on market conditions adds up to out performance.

Let us look at the numbers now

Sl No.Likely Out performersLikely ChallengersLikely outliersWatchlist
1Canara Robeco Bluechip Equity FundIDFC Large Cap FundL&T India Large Cap FundICICI Prudential Bluechip Fund
2BNP Paribas Large Cap FundPGIM India Large Cap FundAxis Bluechip FundHDFC Top 100 Fund
3Mirae Asset Large Cap Fund
4DSP Top 100 Equity Fund
The Elite List

https://drive.google.com/file/d/1vGhFV5XE7HvoQ1_FPrU1WXYQsZP1GZAU/view?usp=sharing is the link to the file containing various parameters…

Canara Robeco Bluechip Equity Fund : is a 335 Crore sized fund, with 44 holdings and 48% exposure to top 10 stocks. Cash held as on Mar 31, 2020 is very close to 8.3%. YTD, this has fallen less than the category average. 2019 and 2018 were very good in terms of performance. Very good and steady downside protection is seen over 1 and 3 year periods. PE and PBV are costly but long term expected earning is attractive. Portfolio seems well positioned for sustained out performance.

BNP Paribas Large Cap Fund : is a 660 Crore sized fund, with 34 holdings and 54% exposure to top 10 stocks. Cash held as on Mar 31, 2020 is very close to 9.5%. YTD, this has fallen less than the category average. 2019 was good and 2018 below average in terms of performance. Good downside protection is seen over 1 and 3 year periods. PE and PBV are costly but long term expected earning is attractive. Portfolio seems well positioned for sustained out performance.

IDFC Large Cap Fund : is a 352 Crore sized fund, with 40 holdings and 60% exposure to top 10 stocks. Cash held as on Mar 31, 2020 is very close to 6.6%. YTD, this has fallen less than the category average. 2019 and 2018 were below average in terms of performance. Good and steady downside protection is seen over 1 and 3 year periods. PE and PBV are costly but long term expected earning is very attractive. Portfolio seems well positioned for sustained out performance with 50% weightage to cyclicals. This could prove to be a worthy challenger to the current top performers soon.

PGIM India Large Cap Fund : is a 238 Crore sized fund, with 50 holdings and 67.5% exposure to top 10 stocks. Cash held as on Mar 31, 2020 is very close to 5%. YTD, this has fallen in line with the category average. 2019 was good and 2018 below average in terms of performance. Reasonable downside protection is seen over 1 and 3 year periods. PE and PBV are costly but long term expected earning is extremely attractive. Portfolio seems well positioned for out performance. This could prove to be a worthy challenger to the current top performers sooner than later.

L&T India Large Cap Fund : is a 410 Crore sized fund, with 61 holdings and 49% exposure to top 10 stocks. Cash held as on Mar 31, 2020 is very close to 3.1%. YTD, this has fallen more than the category average. 2019 was good and 2018 below average in terms of performance. Average downside protection is seen over 1 and 3 year periods. PE and PBV are costly but long term expected earning is very attractive. Portfolio seems well positioned for a surprise turnaround in performance. Hence, gets in to the league of outliers.

Axis Bluechip Fund : is a 10997 Crore sized fund, with 34 holdings and 55.23% exposure to top 10 stocks. Cash held as on Mar 31, 2020 is very close to 19.73%. YTD, this has been one of the top performers. 2019 and 2018 were very good in terms of performance. Excellent and steady downside protection is seen over 1 and 3 year periods. PE and PBV are very costly but long term expected earning is extremely attractive. Portfolio seems well positioned for sustained out performance. If at all this fails to impress, it could be because of cash calls / the bulging size / costly in terms of valuation. I still believe this could pleasantly continue to surprise us with performance.

ICICI Pru Bluechip, HDFC Top 100 are two funds with extremely attractive valuations (PE, PBV and Dividend Yield). Both follow the value strategy that has brought the performance to below average in the previous couple of years. The ability of the fund management team to turnaround the performance is one factor that puts these two under watchlist despite a shallow performance of late. The mega size is also continuing to have an impact in my opinion. Mirae Asset Large Cap is also an attractive one with relatively good valuations. The increasing size and a long portfolio may pose challenges, in my opinion. But worthy of a place in the watchlist.

Disclaimer : This is not a recommendation to buy or sell a fund and this should be read as an analysis. Investors are advised to consult their financial advisors to check the suitability of these schemes for investing based on their investment agenda.

Summarising former RBI Governor, Dr Duvvuri Subbarao’s presentation

It was insightful to watch and listen to Dr Subbarao’s presentation on “Corona Financial Crisis – Is this time different ?” The webinar’s recording, conducted by CFA Society India, is available in their YouTube channel. The session was moderated by Dr. Samiran Chakraborty, Managing Director and Chief Economist, India- Citigroup

I have attempted to summarise the talk which has lots of insights. There was a Q&A session too, which I have excluded from the summary. Interested ones can visit this link https://youtu.be/B7RXHxJk0PI

The talk was structured in the following way :
a) What is similar between Global Financial Crisis (GFC) of 2008 and Corona Financial Crisis (CFC) of 2020,
b) India’s response to Covid-19 and
c) Lessons of the crisis

“What started as a regional epidemic in China has snowballed the world over. There is fear and uncertainty everywhere. Every crisis in history has brought about fundamental shifts in societal attitudes, community patters, households, lifestyles & individual values”. The speaker requested to conduct a thought experiment on “3 ways in which life will change after the corona crisis”. This was an interesting thought and my earlier post titled “Questions need not always be answered was a vague attempt at this. Here is the link to that post… https://ranganathanstreetblog.wordpress.com/2020/04/02/questions-need-not-always-be-answered/

What is similar and What is different at the global level ?
“GFC originated in the financial sector & transmitted to the real economy, whereas the CFC originated in the real economy and transmitted to the financial sector”. This is a striking difference and has its implications.
“During the GFC, faith in the financial system was broken, Demand got destroyed and affected supply as a consequence. Whereas during the CFC, confidence in the real economy is broken. Supply channel was broken which affected demand independently”, he said.

“What does this mean for the solution ? During GFC, trust had to be restored in the financial system which was expected to boost demand and supply. During CFC, trust has to be restored in the real economy”.

“During GFC, restoring financial stability in the US and Europe was necessary to inspire confidence across the world, as these were the epicentres of crisis. During CFC, every country will fight the pandemic within its borders but that is not sufficient. No country in the world is safe until every country in the world is safe”.

Nature & depth of uncertainty :
“Uncertainty is a defined future of every crisis”.
During GFC, Financial institutions were falling and it became imperative for Govt. and Central banks to restore faith in the financial system.
“During 2008, in India too, it was important for RBI to restore faith in the financial system. How far and how long markets would trust us was uncertain. This was being communicated, repeatedly”, he said
“Now, during CFC, there are many unknowns. Known unknowns and unknown unknowns”. To highlight a few, “How effective are the lock downs ? What is the age and gender profile of the susceptibility ? What is the process of recovery ? Will the disease come back ?”. Addressing the uncertainty was relatively simpler during GFC but a bit complex now with many unknowns.

Tensions & Trade off –
“During GFC, solutions to the financial crisis and real economy were working in tandem (reinforced each other). Whereas during CFC, solutions to the crisis, like lock down, impact the economy negatively (working against each other)”.

Global cooperation – “Global leaders showed extraordinary leadership by coming together, during 2008. G20 leaders met and agreed on various stimulus efforts. Global Co-operation is not evident during CFC, which was quite remarkable during GFC. Lot of bitterness found between countries during CFC. There is considerable co-operation though, in scientific research across borders”.

Shape of recovery – V, U or W ?
“Every recession, over the last 25 years, had a V shaped recovery, the sole exception was the GFC where U shaped recovery was observed especially in rich economies. Originally it was thought that recovery would be V shaped during CFC. But this evaporated soon. Because of too many unknowns, the recovery could be V shaped or U shaped or W shaped (if there is another round of infection spread)”, he said.

He briefly touched on the subject of India’s macro in 2020 – “We are weaker than 2008. Growth was around 9% then, but not so now. Financial sector was safe and sound earlier but today the sector is stressed. We are not sure whether the financial sector is resilient enough to withstand the crisis now. There was enough fiscal room for stimulus during 2008 but today we are stressed. Monetary headroom arguably was much more in 2008. The only dimension where we are better is external sector due to the USD reserves”.

India’s response to Covid-19 :

  • Lock down at an earlier point on the curve, which is a relative advantage in reducing the pandemic
  • Govt. came out with a fiscal package to provide livelihood support to the urban informal sector and to the rural sector of about 0.8% of GDP. This was criticised heavily as inadequate
  • RBI came out with its monetary package. 1) A moratorium for 3 months was announced. 2) As the banks would be stressed because of this, liquidity available to banks was improved by cutting CRR. Encouraged lending by cutting repo and reverse repot. 3) TLTRO was announced for banks to buy commercial bonds.

Looking ahead –
“Lives Vs Livelihood dilemma is the one which Governments have to manage”. The speaker quoted a film ‘Sophie’s choice’ in which the character had to choose between sending one of the two children to labour camp and the other one to the gas chamber. The speaker highlighted that Government is in a similar dilemma. “Government is expected to manage the dilemma of saving lives & saving livelihoods”, he said. “Govt. has to spend more on a) improving and expanding medical infra , b) spend more on supporting livelihoods, c) spend more on stimulating economy after some normalcy”

Lessons of the Crisis :
“Learn from others but tailor your own solutions. We cannot just copy what other countries are doing. We have to strike a balance between lives and livelihoods. There are lot of comparisons with what the US, Britain, Malaysia are providing as stimulus but we should arrive at our own figures based solely on our situation.”

While talking of stimulus, he emphasised on carefully planning the exit. “Exit has to be carefully planned, mistakes can be costly” – While talking of exit of the stimulus, he quoted Abhimanyu’s parallel. Like how he suffered, he highlighted that mistakes could prove to be costly.

“Communication (choice of words, repetition) is key during such crisis times… Reassurance is more important” he said. He recalled how RBI was communicating during the GFC emphasising the stability of our financial system. It is worthwhile to recall the present RBI Governor’s concluding statement in his recent address where he said our banks are safe and healthy.

“Even as the short term is compelling, do not ignore the long term”. This was a crucial message even to equity investors during this bad phase, isn’t it ? “Allow creative destruction. Economy will recover supply chain wise, not sector wise”

Conclusion : Though the two crises are strikingly different, it was good to see him talk of recovery. There are lot of other risks like inflation, stagflation and a rating downgrade. A lock down is a new experience for me and believe it is so for many of you too. We need to learn a lot from history during such tough times. It is common practice for many of us to ignore history be it during school days or working days. His insights on analysing the crisis and his learnings from past crises are filled with knowledge for us to acquire.

Disclaimer : As I picked up notes while watching, I may have missed a few points which is not intentional. I tried to capture his words exactly but I am sure, there would be areas where my own words would have creeped in. This is not a verbatim transcript of the talk.

Questions need not always be answered ?

Roads have become cleaner than in the past. Social distancing has given a push to better discipline. Air quality has improved a lot. Noise is less. Twenty four hours seem more than what I used to feel. Many were craving for these, in the past. But for a pandemic, we could have taken any other reason worthy enough to create such an impact. Changes get triggered and we are just witnesses.

No work for many. Many continue to work from home. Lot of questions remain on the kind of changes that we may see in the near future. The following are some of the questions I have in mind, I am not seeking answers to them immediately though. We do not have to seek answers for every question but we will be answered once the changes mature in to reality

How fearful it would be to meet a prospect for business in the next few days after lock down ? Like how email swept away snail mail, would technology take over personal meetings too ?

Would office spaces, especially IT and Service oriented businesses, shrink in size ? How would real estate investing be in such a scenario ?

How would the society view someone who would mostly stay at home but continue to earn ? How would family relationships evolve in such a scenario ?

Would this crisis be ignored in the long run, basis the statement “public memory is short lived” ?

Would spend thrift people go back to fundamentals ? Would there be a revival of savings culture ? How would the foot falls, in malls and other entertainment zones, get affected ?

A vacation abroad was a much sought after goal in the recent past. Would that dwindle or offers would galore to push this further ?

Would we see revival of cooking and eating at home culture ?

How dependent were we as a society ? Would we become more inter-dependent ?

How disrespectful we were to some individuals based on their job ?

How did we succumb to social media addiction ? Would that grow or jettison from our lives ?

The list seems endless at this point. But, tough times have inspired humans in the past. Are we ready to embrace the next wave of change or is this just going to be a fading memory, a dumb story to share with the next generation ?

The Rear View…

The Coronavirus triggered lockdown for 21 days made me to look back at similar crises that I could remember. There are many suggestions that are WhatsApp forwarded, helping the clueless to spend these 21 days at home, while socially distancing oneself. An article by Yuval Noah Harari inspired me to take a look at the past…

7 day shut off... 1983

The first one that I could recall was during 1983 when I was a High School student. A good number of refugees from Sri Lanka were accommodated at various Schools throughout Tamil Nadu. Hence, Schools were closed for a week. At that young age, I could never comprehend the severity of the situation. But it had become a daily ritual for me along with friends, to visit the School and have a look at the refugee camp from outside, as if they were from a different planet. We were having fun because of the holidays and I vaguely remember wondering why they were not dressed properly. We all wished they would stay longer so that the holidays get extended. That occurrence never had any impact on me, as a crisis, but somewhere deep inside, those images of people, who had lost everything they owned, worries running like roots on their faces, remain vivid.

Tsunami… 2004

It was a Sunday. Everything used to move at a slow pace in the morning at our home on Sundays. I was browsing the newspaper and suddenly heard neighbours getting anxious about sea water entering land in Chennai. I was living in Thiruvanmiyur in those days which was hardly a kilometre away from the beach. Those days, breaking news was not at such breakneck speed. I casually took my two-wheeler to find out what had happened. By the time I reached Elliotts Beach, there were barricades put up and policemen did not allow anyone beyond a point. I came back confused, unable to find out what actually had happened. Once I reached home, there was this talk of TSUNAMI hitting Chennai. That was the first time I heard the word and the news anchor himself explained what a TSUNAMI was. We received phone calls from our relatives and friends to find out how safe we were. But only the next day, I could realise the impact and the damage it had done on the lives of so many along the shore. For the next few days, there were lots of warnings issued on a likely TSUNAMI again but fortunately nothing happened. It was pathetic to drive down the Marina. I listened to a few witnesses who were fortunate to survive over the media and in person. Even now, it unleashes a thunderous pain thinking of those days.

FLOODS… 2015

When you realise slowly that you have no control over what is happening in front of you, insecurity creeps in. You seek shelter in the supreme power and prayer is the only weapon you seem to have. This was precisely my experience during the Chennai floods in 2015. It was a year back that I had lost my Father to cancer. It started pouring heavily without a break. Water level on the streets kept rising. We had to reach out to the local authorities as a group of neighbours and every word uttered by us, showed our lack of control over what continued to happen. Power supply got cut, water entered the homes and it was a nightmare. Further rain was forecast for the week ahead. I started interacting with many weather enthusiasts and collected lot of links that were more than 90% accurate in weather forecasting. The forecast for the week ahead was heavy spell of rains for 3 days and I could imagine the havoc it would create in the city. I decided to relocate my home and within a short period of 7 days, I had to move to a relatively safer area. It was exactly a day before the rain showed its prowess, that I shifted my home. 3 days of non stop rains flooded the city like never before. No communication was reliable, we had to make travel arrangements for a relative, we were fortunate to accommodate a couple of affected families (relatives though), due to relocation we had power back up but no news was reaching our antennas. If it had continued for a couple of more days, I was sure we would have witnessed street fights for food and essentials. The scenario resembled a war zone with people running like crazy. People were fleeing homes which were bought for crores. Many lives were lost during the episode and Chennai limped back to normalcy weeks later.

How easy it is live through those moments now ! In hindsight everything looks less challenging. l keep sharing with my family a few thoughts. A single event can be devastating if it matures in to a crisis (think of those refugees). Life takes a different road after that. No amount of preparedness is enough to handle those moments but the will to survive those harsh periods and the ability to start from scratch and put up a fight are crucial to stay afloat and grow. Nasim Nicholas Taleb keeps emphasising about fat tail risks and the devastating impacts of such events. Tsunami – Who was expecting it then ? We had not even bothered to understand what that word was, earlier. Just imagine how many lives have taken different paths after that crisis ! Though I was fortunate to prepare ourselves to stay away from the impact of Chennai floods, I owe it to my previous experience. How many times we are allowed to prepare ourselves before a crisis strikes ?

“Expect the unexpected” ! Collectively, humans have the potential to overcome such crises but at the cost of a few lives, on many occasions. A simple need based living with flexibility to adapt to different living conditions for short periods of challenging times is the need of the hour ! Let us live healthy, peacefully, in harmony. Every crisis reminds us that “This too shall pass”. We learn to adapt better in the process…