These factors will weigh heavily on emerging markets, life will continue with the virus

Rising inflation, rising interest rates, changes and tightening of monetary policies can cause problems for all emerging markets including India.

symbolic picture

If we look back to the year 2021, then the novel ‘A Tale of Two Cities’ by Charles Dickins shows the situation better. It was the best of times, this was the worst of times. (It was a time of wisdom, it was a time of foolishness, it was a time of faith, it was a time of disbelief, it was a time of light, it was a time of darkness, it was a spring of hope, it was a chill of despair)

We have never seen such a sharp divergence between property value and economic condition. Most of the earlier shocks were of financial nature. There used to be a period in which there was correction and recovery. This time it was a matter related to health and medical and the world reacted in a way that is given after any global financial crisis. For example, providing cash/easy money. As a result, global asset prices (across all categories) have gone up after a short period of sharp decline. We are not complaining about it, but it will be interesting to see what exactly is the situation.

These factors can bother emerging markets

Ajit Menon, CEO, PGIM India Mutual Fund, said, “From an economic point of view, the main threat lies in the rise in inflation and interest rates in the coming days, which will end the environment for easy liquidity. The temporary or ongoing global debate on inflation is not over yet and one can continue till the situation is undone. However, rising inflation, rising interest rates, changes and tightening of monetary policies can cause problems for all emerging markets including India.

Especially from the Indian point of view, we are not absolute about the global environment, but some things are different. First- we are still a country with a partially convertible capital account and therefore are slightly less affected by global shocks. Second- Domestic sectors like real estate and heavy sectors like industrial/manufacturing/capital expenditure, which were sleepy for the last decade, seem to be on the move now. Third- If the China Plus One strategy gets further strength, then it will help countries like India and Southeast Asian countries can also benefit from it.

According to the kind of returns seen in the markets in the past, it would be appropriate to reduce the expectations of returns from now to the near to medium term. Top-down market will require a bottom up approach and the selection and allocation of the right stock/asset will prove to be the key differentiator.

Omicron’s rise is a cause for concern

Return momentum and normalization of growth are the key indicators. However, high frequency indicators are improving and there has been an increase in contact based services and urban consumption. However, it seems that consumption in rural areas has not fully recovered yet. The rise of Omicron in recent times is a matter of concern. However, it is too early to assess its impact at this juncture, how much it will spread, how severe it will be or how much effect the current vaccine will have on it.

virus will persist in any form

However, after the initial uproar, now the deadlock is expected to be less across the world than before. Now it should be assumed that the virus (in any form) will remain here and the best thing is that it will not be in the form of an epidemic, but as a local virus, with which life will go on as normal.

The discussion and debate on the economy can be continued, but it is important to be aware of the changes in the future context. I believe that the pace of change in the last few decades has been unprecedented and we humans have embraced it well. However, the pace of change could be much faster in the coming years. We are seeing all the new changes and new concepts in some old ones like Metaverse, Blockchain, Crypto, NFT, Artificial Intelligence, Machine Learning, Climate Change etc. The list of such words is constantly growing. I cannot say with certainty how widespread all or any of these take. However, one thing is certain that we should be aware and agile enough to accept the upcoming changes on a large scale. The ability to adapt to them will be the major differentiator between superiority and mediocrity.

If we take the example of investment world, then new age companies, their business models are being worked on with enthusiasm. They will not be investment-worthy when viewed in the traditional way and they cannot be ignored given their huge size. This is just one of the hustle and bustle of the rapidly changing environment. In such a situation, I will refer to a statement of Dr. Wayne Dyer – Change the way you look at something, the things you look at, they keep changing.

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