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Understanding the ‘VUCA’ world

It may take longer than you think for financial markets to recover, but you have enough time to rework investments

Published: 28th September 2020 03:46 AM  |   Last Updated: 28th September 2020 09:52 AM   |  A+A-

money, currency, economy

Representational Image. (File Photo)

Express News Service

Head of the general elections of May 2019, this column touched upon the term ‘VUCA’. It stands for Volatile, Uncertain, Complex and Ambiguous. At that instance, it seemed relevant. Financial markets were unclear about election results. Months before the election, no government takes any major policy decisions, an essential factor to determine future growth in businesses. International and domestic investors turn cautious and wait for the election outcome to decide the future course of action. As we think about the world around us today, the term ‘VUCA’ has got a whole new meaning.

amit bandre

Volatile
Financial markets have turned volatile by a multiple over 2019. The global pandemic has hit markets in India and the world and split the investor community. Some think people are optimistic even to believe that the world would see a ‘U’ shaped recovery. Then some foresaw a ‘V’ shaped recovery and played the market. The S&P BSE Sensex and NSE Nifty movement in March 2020 was a case in point. After a 40 per cent slump, share prices have crawled back to the same levels.

Before the pandemic, the India VIX index used to hover between 15-20 levels. It scaled a record high in the 80s and quickly crossed the 20-mark on volatile days. The last time volatility soared like that was in the aftermath of the global financial crisis. It took a good one year for businesses to recover. The present situation is not just about financial markets. It is a medical problem that has turned into a social and 
economic issue. That could take much longer to recover than anyone thinks. From a personal finance standpoint, you have enough time to rework your investments.

Uncertain
The policy uncertainty back in 2019 seems like no uncertainty at all. Just read the commentary from experts. Very few can tell you what lies ahead. Someone says the US dollar would crash and someone else pitches for the flight to safety in the US dollar-denominated assets. Analysts have a wide range of assessment for India’s growth in 2020-21 and 2021-22. Some say the economy would contract by as high as 10 per cent and bounce back to 7 per cent growth in 2021-22. Riding on that assessment, stock market analysts predict a fall of 10-15 per cent in profit growth of Nifty companies and a jump of as high as 55 per cent in 2021-22. It is tough to make sense of these numbers and believe that things would move that direction. That makes direct stock market investing tough. However, passive investing through exchange-traded funds or mutual funds may be a way out.

Complex
It was just about waiting for the election results day to make things simple from a policy standpoint. The present situation takes the complexity of the government policy to a new level. Ahead of the pandemic, the government was trying to pitch India as an alternate destination for manufacturing as the US-China trade war waged. As the epidemic hit the world, the government is out pushing India as an investment destination. It hurriedly passed a few labour laws to enhance further the ‘Ease of doing business’ standing in the world. 

However, with tax and non-tax revenue in a free fall, the government has limited headroom to provide any financial incentives to new businesses. The present need is to put cash in the hands of the people and companies. However, the government is unable to do so due to fiscal constraints. It has resorted to making changes in compliance rules and providing relief on tax compliance and loan repayments. While it is prudent from a government finances standpoint, it may not be enough. It would help if you watched out for the interest rates as they affect your finances directly.

Ambiguous
It was all about the ambiguity in the government policies ahead of the 2019 general elections and after the event. Today, the term is much more clear than ever before. One example is enough to explain it. There was a lot of apprehension about employees ‘working from home’ before the pandemic. As the number of infections raged, white-collar workers swiftly made a move. So much so that businesses are now in a fix. Many have found employees turn more efficient than before. While you cannot replace an office with all employees working from home at large listed companies, you have to incorporate new policies to make that a standard procedure. There is a lot of ambiguity out there about ‘workplace’ rules at home.

(The author is editor-in-chief at www.moneyminute.in)



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