How COVID-19 Has Reshaped Investor Thinking

Indexes and stocks have seen record gains since the start of the COVID-19 pandemic

COVID-19 has hit economies hard, but none have been affected as badly as India and the United States. However, both these countries have been making steady progress in terms of vaccinations, and the United States has now become among the best in inoculating its people. Both countries are also seeing a recovery in their economy, with India’s GDP seeing a massive 20.1% growth rate in the quarter to June, after a fall in earlier periods. The U.S. economy also performed better than expected and corporate earnings picked up in the second quarter. This recovery is a testimony to these countries’ strength and spirit. These qualities make both India and the United States attractive investment destinations as the entire globe looks to  get back on their feet from the hit to the economy, driven by the COVID-19 pandemic that has been a strain on companies and the general public. 

If this superlative recovery in the economy is not enough for investors to stash their hard-earned money in Indian and American stocks, bonds or mutual funds, those who are looking for ways to make their wealth grow need not look further than what the modern, technology-driven investment opportunities stemming from the aptly termed Fourth Industrial Revolution has to offer. This ‘revolution’ has given ample openings for people to take advantage of the trends arising from economies that have learned to cope with the COVID-19 pandemic in an effective way.  

COVID-19 was a shock to the system, but it also gave people the opportunity to begin a base-level rethink of most aspects in investing that money managers did not previously take seriously. This includes a renewed focus on how companies manage their employees and how smartly they invest their capital in important areas such as sustainability and equity. Morgan Stanley published a research note in February that said funds focussed on sustainable businesses outperformed their traditional peers during the last year, when the pandemic tightened its squeeze on the world economy. 

This has presented a wealth of opportunities for investors. 

Consider companies involved in the manufacture of electric vehicles, for example. Tesla’s stock outperformed the S&P 500 to such an extent that by the end of 2020, it contributed to 1.7% of the benchmark U.S. index’s weight, according to Bloomberg. This was only behind the tech giants Amazon, Alphabet and Facebook. Tesla’s message of reducing the harm to the environment struck a chord with investors, who lapped up the stock, giving it record valuations during the pandemic year. 

Similarly, Video conferencing software company Zoom shares rose as much as 600% as investors bet on new working policies in the wake of the pandemic, which would lead to an uptick in the use of teleconferencing applications.  

In India, both the BSE Sensex and NSE Nifty hit record highs and MSCI’s India index rose over 10%, underscoring investor confidence in the country’s long-term investment opportunity. Banking and financial stocks, which were hit last year because of crushing bad loans, have recovered as lending picked up during the pandemic. Shares of State Bank of India, ICICI Bank and Axis Bank have all seen double-digit growth this year so far. 

Investor mindset in India has also shifted from a focus of making short-term gains to achieving long-term profits. They use this focussed approach for goal-based outcomes such as saving for a wedding, planning retirement or buying their first car. 

A RENEWED INVESTOR FOCUS ON DIVERSITY 

Diversity and inclusion are directly corelated to financial performance. Studies by global firms such as McKinsey and Boston Consulting Group (BCG) have showed that higher gender and racial diversity have led to better financial performance and innovation.  Harvard Business Review even quantified these measures among venture capitalists, finding that less diverse boards among VCs led to a 11.5% lower success rate for such firms in IPOs. 

With such a business case for diversity, it is no doubt that investors are closely watching how their money is being put to good use. Research from Wall Street Journal showed that the 20 most diverse companies in the United States had better financial results on average than the firms that scored the lowest, while their shares generally outperformed the least diverse firms. Companies with diverse boards and employees were shown to outperform their non-diverse peers by as much as 20% in terms of five-year returns. 

However, there is still opportunity in the diversity space, with less than 2% of the S&P 500 components having boards with at least half of them being women. Over three-fourths of the index’s constituents had boards consisting of over 66% men. This despite Bank of America’s research showing that companies with above-average diversity gave returns-on-equity that were 15% higher than their peers. 

In India too, diversity and inclusion is only a dream, despite mandates by the government and regulators to ensure better representation of women in boards. Over 60% of the Nifty 500 firms had no women representatives on their boards until mandates were put out, and most firms have still not filled those positions in spite of regulators pushing for them. 

It is only a matter of time before these things become an investment priority. 

Sustainable and ethical investing is the need of the hour and investors are up to the task. We at Savart prioritize ethical investing over the long term. Sign up for more.