Opportunities in a “Black Swan” Environment
You’ve heard and read this multiple times — we’re living in unprecedented times. History, as they say, repeats itself but most of us alive today have not faced such an unfamiliar environment as we are in currently. Moreover, this unique combination of events i.e global respiratory pandemic, market slowdown, supply shock and so on, has never occured in past history (that I know of).
A market slowdown has been brewing, at least in India, since Sept-2018 when the IL&FS domino started falling. With it, out came many skeletons — DHFL, Videocon, PNB Bank and so on. This event spurred a liquidity crisis in the Indian market — tightening of debt in the market, RBI cutting interest rates to a 9-year low, but not trickling down to the end borrower and so on. Interest rates continued to be high while inflation inched higher.
In the current global scenario, the market slowdown, as financial pundits put it, is not caused due to systemic problems. In fact, they claim that private banking and the financial sector is fairly well capitalised. The quote from their note that really explains it for me is this — “it feels more like 9/11 than 2008”. Meaning this is caused by external factors not internal issues/problems — which largely makes sense.
Since March, 2020, the market slowdown got accelerated by the mighty Covid-19 a.k.a Coronavirus. The virus was discovered end-December, 2019 and really started spreading in end-January, 2020 but people initially felt that it would be limited to China. Nobody realised how globalised China’s supply chain really is and how many businesses across the world work with China. No, this is not to suggest that the virus spread through China’s supply chain. I mean the sheer people that travel to and from China is staggering — global businesses need to travel to China to find local suppliers, manufacturers, assembling factories and so on. People travel and Coronavirus is a respiratory disease.
Being an infectious respiratory disease, at the time of writing (5th April, 2020), 1.2 million people have been infected with 65,652 fatalities. To counter the spread of the virus, several countries have imposed prolonged nationwide lock downs — forcing people to stay at home. Parks, public transport, public spaces, malls, restaurants among many others are completely shut with the exception of essential services e.g. hospitals, groceries, banks and so on.
The lock down is likely to change peoples behaviour and mindset — some for the better, others not so much. This period is more likely to impact how businesses function and that’s where all the opportunity lies. From a private investment/business perspective this opens up several opportunities but also closes some doors, may be temporarily.
Certainly, I’m not nearly knowledgeable to understand the market linkages and how one sector impacts another — so take this and the next sections with a pinch of salt. An example of market dependencies: due to the lock down, the Indian Premier League (IPL) may not happen this year (2020), this will directly impact the businesses of ticketing, coverage teams (photo, video, social media), news, public relations, marketing, security and people management, merchandise, restaurants and so on. The other problem that comes out of this lock down is the supply shock that will hit the market — but that’s a topic for another post.
This time at home forces one to think of ways these black swan events of Corona Virus, YES Bank, Market slowdown will impact businesses. What markets will have new opportunities and what markets will face challenges. Below, I attempt to sumarise my thoughts on this question.
General Opportunities :
- Content: streaming, social content, connected content
- Education: E-learning / e-assessment, online skiling
- Collaboration: remote work, collaboration, audio/video conferencing
- Food: packed foods
- Health: tele-consultation, pharmaceuticals delivery, Diagnostics
- Grocery: essentials, grocery delivery
- Authentication: E-KYC / contactless or presenceless authentication
- Gaming: gaming studios, game/sports live streaming
- Fintech: Digital Debt collections, Digital/Contactless payments, Wealth management
- Infrastructure: cloud infrastructure
Markets that will face challenges:
- Food delivery / last mile
- Logistics / supply chain
- Pharmaceutical manufacturing
- Airlines and online travel agents
- Retail / malls
- Hospitality / hotels / restaurants / malls
- Apparel (holiday season)
- Travel industry
- Mobility — uber/ola
- Consumer/SME Debt
Specific Opportunities in Fintech (not exhaustive):
- Merchant payments (B2B)
- Digital debt collections
- Consumer Asset-backed lending
- UPI credit / credit cards
- Health insurance
- Full stack health platform (insurance+++)
4. Wealth Management
- Mutual fund company/investment platform
5. Enterprise SaaS
- Digital authentication / KYC
- Offline to Online retail
What do you think? Which sectors will be impacted — for better or worse? Let’s discuss this.