For India, the short-term difficulties could act as a catalyst to accelerate the push into a new era.
Highlights:
- As investors search for growth stories to back, there will be a fresh focus on areas that will benefit from the rapid adoption of leapfrogging technologies.
- Building systematically on India's success in mobile internet and banking penetration will be central to the quality of economic growth going forward.
- The business opportunities unique to India in personal wellness are abundant and will grow in both the domestic and export markets.
The fallout of COVID-19 is unlikely to stymy the long-term growth prospect, yet the economy is as at inflection point as a protracted contraction is in play. Companies involved in traditional sectors like transport, infrastructure, energy and mining are at risk of underperforming in the current environment and expected lead times for recovery will vary. Some of these sectors have perhaps unduly borne the brunt of the global selloff coupled with broader concerns over burgeoning emerging market fiscal deficits in the face of the pandemic.
Meanwhile, as investors holding dry powder search for growth stories to back, there will be a fresh focus on areas that will benefit from the rapid adoption of leapfrogging technologies. Early adopters of advanced communication networks like 5G will double down on developing new solutions in fields such as telemedicine, e-learning, cyber security, and environmental sustainability to stay ahead of the curve.
The belief that boosting connectivity improves efficiencies in trade and thus has a long-term deflationary impact, is central to the government's vision behind the five-year National Infrastructure Pipeline (NIP). Despite a widening fiscal deficit this year, the government is unlikely to drastically scale back on its commitment to the NIP. It would continue to pitch to global investors that Indian infrastructure projects like roads under Infrastructure Investment Trusts (InvITs) and toll-operate-transfer (TOT) setups generate real growth. Attesting to the opportunity that lies in this space, the Asian Development Bank committed $100 million at the end of March to the National Infrastructure Investment Fund (NIIF) amid the fallout of the virus.
It will become increasingly important to tap the QE-driven low-interest international debt markets as well as developed market pension fund capital in search of yield to service rising claims as client bases age. Competition, however, arises from the Federal Reserve-supported investment-grade debt as well as equities which are second-order beneficiaries of the interventions in the fixed income space.
Furthermore, construction, revenue and operational risks will be considered by potential investors in light of the creditworthiness of local project partners. As portfolios are calibrated to adjust to a new risk framework, the lead time is likely to be a year before sizeable capital injection is witnessed. That said, infrastructure developers and material suppliers that have strong balance sheets will remain well poised to take advantage of the government's consistent push to deliver on the NIP in the coming years. This is despite an expected contraction of 3-7 per cent this year across core industries like steel, power and cement as private sector demand declines.
Changing consumer behaviour
Enterprises will embrace the adaptations in consumer behaviour which have been triggered by the nudge economics at play, while their ability to effectively scale up and cast their nets wide will largely depend on their access to credit and adoption of emerging technologies. Building systematically on India's success in mobile internet and banking penetration will be central to the quality of economic growth going forward. The current platform from which this is possible can be attributed to the telecom industry's aggressively low data pricing which yielded around 630 million mobile internet connections, leapfrogging fixed-line connections of which only 19 million exist.
Some changes will start before the rollout of a secure 5G network, while a bulk of the metamorphosis in the very nature of the way Indians transact, learn, work, receive healthcare and consume entertainment, will happen after. A post-COVID-19 outbreak consumer sentiment survey conducted by McKinsey points at a structural shift in buying habits especially in online retail for consumer staples, education and media.
The nudge towards using digital platforms will have a lasting effect, altering consumer choices across the board. MSMEs will increasingly rely on efficient last-mile delivery and electronic inventory management systems to adapt to the new reality of altered end-user preferences. While stickiness in unemployment because of the lockdown is likely to persist in parts of the unorganised sector thus weighing down on aggregate demand, new employment opportunities will arise during this period of preparation for the technological gamechanger, 5G.
Companies involved in providing digital transformation solutions to the laggards in the PSU banking industry should outperform in the runup to the switch to 5G as they ready themselves for the tectonic shift in fintech. On the education front, improving both the quality and reach is crucial for harnessing the nation's demographic dividend. As with other leapfrogging examples, the push towards low-cost e-learning bypasses the hurdles of inadequate physical infrastructure. Further mirroring a global trend, corporate India will invest in technology platforms and upgraded cyber security that enable employees to work from home. Commercial real estate will feel the pinch of lower capacity utilisation, although it is a small price to pay for much needed urban decongestion and associated pollution reduction.
As scrutiny mounts on the strength of public health infrastructure, significant opportunities arise in physical and digital healthcare. Advanced telecommunications will render the low doctor per capita ratio less burdensome as remote diagnostics, surgeries and post-treatment care gain traction. Rising fixed investment in hospital infrastructure and medical equipment is also expected. The positive externalities generated as the masses consume quality healthcare will give a fillip to the wider economy.
A renewed focus on Ayurveda and yoga will accelerate a trend that has already been in play, as wealth becomes increasingly defined by personal wellbeing. A combination of the impact of loose monetary policy, exponentially growing adoption of deflationary technologies and multi-decade poverty reduction, has altered the innate value of fiat money. While it would be bold to suggest a retreat from materialism is guaranteed, COVID-19 and the ensuing lockdown may be viewed as trigger points, ultimately encouraging the individual to look inwards. The business opportunities unique to India in the field of personal wellness are abundant and will grow in both the domestic and export markets.
While naysayers talk of a more unequal world post-COVID-19, there are plenty of reasons to be optimistic. India is at a stage in which the short-term pain will act as a catalyst to accelerate the push into a new era - one defined by leapfrogging technologies enabling inclusive and sustainable growth. A healthy credit market is critical for enabling businesses to both ride out the storm and position themselves for the future. The opportunities and risks in traditional as well new, high-growth sectors will be assessed considering the access to innovative funding methods as the world shifts into a new economic paradigm.
Surya Kanegaonkar is a commodities professional with ten years of experience in research and trading for a hedge fund, utility and miner.
