Warren Buffet said that in the business world, the rear-view mirror is always clearer than the windshield! This is the case in India today. After almost 1 year of demonetisation and GST implementation, the consensus among economists, businesses and industry is that India is headed for a major economic downturn, maybe even a severe recession with over 1.5 million jobs lost in the last 4 months.
The latest United Nations trade report (UNCTAD) estimates huge job losses in the next 12 months and large levels of underemployment. But the economy is not our focus in this article. This article looks at the products and industries that will be the stars in the recession, as well as those which will face a reversal in fortunes. Products and companies that are popular today look to be in trouble in the next 12 months. A major reason for the topsy-turvy situation is due to 2 factors:
(1) During recession, people stop buying things
(2) Cost saving becomes a priority. This applies to both individuals and companies.
To look at the products which will do well and those which will do badly, I have divided them into the 'The Good' (those which will do well), 'The Bad' (those which will do badly) and 'The Ugly' (those which will struggle).
Author Robin Sharma once said, "Recession is opportunity in wolf's clothing".
In situations like this, products that have a mediocre-run in normal times suddenly get tremendous opportunity. To understand this, we go back to cost saving.
If we look at the B2C (consumer) market, which products do we think will do well? Predictions are always difficult, but when cost is an issue, consumer spending is at a minimum. Products and industries which save cost will thrive. The range is vast, but let us make some easy-to-see predictions.
Hospitality, small and reasonable priced food outlets, particularly non-AC ones (which have less GST) will do well. Darshini hotels will thrive. Medicines, of course, are evergreen, but generic drugs will surge compared to brands. In the B2C consumer technology industry, websites that offer discounts (aggregators), websites like Groupon, will do well.
In the B2B (corporate) market, the list is even more sparse. People tracking systems will do extremely well as companies will be desperate to save peoples time and money with less interest on employee concerns. Simple apps that replace devices (like biometrics) if they offer a cost effective solution will be another big area of success. Entertainment apps. and sites which offer effective viewing experiences will do well, along with gaming sites.
Gold as has been shown in the past will do well as people invest in security, particularly with banks looking shaky and offering poor interest rates on fixed deposits. Companies with large export markets or clients abroad will also do well as their dependence on the Indian market is less.
Unfortunately, the list of products and companies doing badly during the recession is almost endless. As spending of both consumers and corporates is expected to be drastically cut, we are talking of major disruptions in the automotive industry, the luxury goods industry, the restaurant industry, the insurance market, the financial markets, the retail industry, the PR and advertising industry, and the transport industry.
The transport industry will be badly hit because with less consumption, less goods will be needed for transportation. And with large employee layoffs expected, transportation will also come down. But in my opinion, the worst hit will be consumer e-commerce sites, even ones offering essential items like medicines or food.
With the squeeze being felt by all, normal business will offer discounts which e-commerce cannot match. After all, e-commerce sites have acted as aggregators offering great price advantages to consumers. But when a large number of their suppliers are out of business, or, offering discounts themselves for survival, the e-commerce sites will face huge survival issues. The cash rich ones may survive. And by cash rich I mean those who have already accessed large capital like Flipkart or Amazon which have a large presence outside India to sustain them. But the majority will fold as their market squeezes.
The ugly are those products and industries which are expected to see tough times, but can survive if they are well run and do not have large debt.
Manufacturing is a major area that can survive, if they are not top heavy with loans and if they are not dependent on a single industry. Logistics will shrink very badly, but will still survive as a country as big as India still needs logistics.
Software consulting (companies like Infosys, Wipro) will survive as they have large cash reserves, with the 2nd and 3rd rung software companies surviving but shrinking as they have a market as well. Travel will also shrink badly, but budget places will do well as they offer a cost effective alternative.
Software products (ERP's, cloud systems) will also shrink as companies will not want to spend on software unless absolutely necessary, but will keep the industry afloat. Software apps will go down big unless they save cost or create efficiencies at a low expense cost. The exception will be financial systems like Tally and People Tracking systems and other cost saving systems which are not expensive to install and save cost or are needed.
So what does one do if they are in the bad and the ugly? First, tighten the belt drastically. If you can save cost, do so now. When Narayanan Murthy came back for a second stint at Infosys, the first thing he did was tighten expenses. It is better to get rid of unnecessary costs now than be forced to do worse later on. Another option is to look at alternative uses of your own business to add value to the market. One option available to all is training.
The government through NSDC (national skill development council) has allocated 20,000 crore to training programmes. With large job losses, people will also need re-skilling. Using your industry skills to train as an additional business is also an option as you will be using skills that are already in your expertise. Think out of the box! Its just a small step to move to the 'Good'. Use it now.
(Joseph Rasquinha has a Ph.D in economics from the School of Management in St. Andrews University, Scotland, ranked as the best business school in the UK in 2017)