After nearly 3 months of imposition of strict lockdown across the country, where we had learnt to survive on just the basic essentials, the government began its first step to normalcy with its plan of ‘Unlock 1.0’ from 8th June 2020 and more recently with Unlock 3.0.
During the lockdown, it is estimated that just about one-fourth of India's $2.8 trillion economic movement was functioning1. Can you imagine the scale of the impact it could have on the jobs, businesses, and the economy as a whole? In fact, the Chief Economic Advisor to the Government of India indicated that India is headed for a negative growth rate in FY 2021. One of the first and direct effects of this was seen on market valuations with the stock market suffering its worst dip ever on 23rd March 2020. Many investors’ portfolios could have shaved off considerable value because of this.
Unlock 1.0 however brought some hope towards recovery of the economy. Now Unlock 2.0 and the recent Unlock 3.0 has resulted in several major economic activities re-opening barring a few which make social distancing difficult, which we hope would put the Indian economy on a faster track to recovery.
How can Unlocking impact you as an investor?
A physical Unlock can also mean 'unlocking your portfolio value'
One of the biggest casualties of the lockdown for investors was probably the depletion in the book value of their equity-oriented portfolio.
As businesses re-open and demand recovery begins, economic activity can be boosted. This can alleviate market sentiment helping the markets bounce back, hence increasing the valuation of your portfolio.
Proof is in the numbers!
An oft used quote, the ‘proof is in the numbers’ could very much apply to Unlock 2.0. The government had released a 14-point statement ‘Increase in Economic Activity-Improvement in Economic Indicators’2, on 23 June 2020, a few weeks after Unlock 1.0 to demonstrate that the seeds for economic revival had been sown post Unlock 1.0.
Post this statement, the BSE SENSEX index rose to breach the 35,000-point mark for the first time since March 20203.
Unlocking in the country has released the pent-up demand in several sectors such as consumer durables and infrastructure sectors, creating a potential for bounce back in the growth of these sectors. Sectoral funds in your portfolio which focus on some of these sectors may see a positive impact.
Increased investments if your income improves
As restrictions further ease out in Unlock 3.0, you may see a resurgence in your income as well especially if you are a businessperson or a self-employed professional. During lockdown it was reported that more than 45% of households reported a reduction in their income as compared to the previous year4. A bounce back in household income, can increase savings and the flow of investments.
Unlock 3.0 can thus boost your investment portfolio!
So, while India enters Unlock 3.0, and maybe several other phases of Unlock to follow, your investment portfolio may also begin unlocking its true value. If you are a long-term investor in fact, these setbacks faced by the market should not impact you in any way other than mere book depletion of your investment portfolio. Stay invested and look forward to value unlocking in your portfolio as the Indian economy begins its recovery journey.
"Lockdown relaxation— more than half of India's economy may reopen from Monday, says Nomura". Business Insider. Retrieved 18 April 2020.
BSE historical data
Research, Centre for Policy. "Podcast: How has India's lockdown impacted unemployment rates and income levels?". Scroll.in. Retrieved 24 April 2020.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.