The Hard Reset

While we all fight COVID-19 together, I don’t think anyone living today has seen a bigger global crisis as this. Everything shattered in a month’s time. Lives, health and wellness, environment, beliefs, economies, economics, psychology, planning or then decision making - every aspect of our being is questioned. Every fundamental of existence is being questioned. Its impact on future is only superficially discussed but largely factored in our grey sentiments.

Having said that, we will soon come out of this, too. That’s what the human race is known for. We are fighters, after all!!!

I have a strong belief that, COVID-19 is, in a way, is a “Reset Button”. All the settings, in every form will be reset.

But it’s hard to predict what the new settings will be. Looking at the facts, we can only hazard a guess.

Redefining, of sorts, is expected to have large bearing upon -

1. Emerging way of life;
2. Future planning;
3. Mental health;
4. Education;
5. Health and sanitation;
6. Conducting businesses;
7. Readiness for eventualities;
8. Employment and remuneration structures;
9. Change in consumption patterns; and
10. Capital markets.

Some of the changes we would resist and some will be welcomed wholeheartedly. It’s a high possibility that, whatever we imbibe during this time period may become our way of life. A small example which has a high possibility to convert into the way-of-life may be work-from-home.

Based on my interactions with people and businesses, here are a few insights that I gathered from my observations. And while we’re all observing lock-downs globally, we can take the time to think about these and the far reaching impacts these would have.

Social Reset

Every time in the past, such crises have brought people together, made them more socially aware, active and empathetic (this is rare and will bring all strata of society to one level). Hence, I believe, social resetting will emerge as a big change. It’s evident that reliance on gadgets and digital activities will increase dramatically in the short term. But there is a bigger chance of this crisis resulting in improving the family value quotient, which may imply being more “physically” social than “digitally” social.

Human Capital Reset

Further pressure on businesses is evident, which will essentially force them to undergo a massive cut in fixed costs to survive. In many cases, a permanent lock down can’t be ruled out. In either case, employees will face a major hit - remuneration cuts or readjusted structures or worst case loss of employment. Some of the businesses have already embarked on this route by announcing pay cuts.

Business Outlook Reset

We have always witnessed that crises, due to an environment of uncertainty, makes people think differently. Thinking differently may lead to disruptions and innovation. And this is my expectation here, too. It will allow us to reset our thinking towards the way we conduct businesses in every form.

1. Approach to the concept of Consumer;
2. Change in consumption pattern and resultant product innovation;
3. Balance of risks and rewards;
4. Management of working capital; and
5. Most critical - Alignment of human capital.

Actions taken regarding the points above will decide survival of companies and will reset certain trends forever.

Consumption Patterns Reset

Consumption is directly proportional to household income and its sustainability and certainty. This will also redefine risk appetite in the short term. But more importantly, it will reset consumption and redefine the consumption patterns significantly. Just this aspect has the power to redefine the way an economy will be looked at. It has the power to reset the future estimation for growth. Many businesses shall go through reinvention of their products and associated pricing strategies. Capacities created in last few years will have to be re-written or refined.

Business and Value Reset

This is a blind theory, but I am sure, it is bound to happen in multiple ways.

In India, we have been witnessing a severe pressure of economic slowdown over past couple of years - may be attributed to cautious consumption, demonetisation, GST, working capital mismatches, policy issues, among others. But in today’s scenario, with the advent of COVID-19, these issues now seem insignificant.

Simply put - how many small or large business outfits will be able to take up the existing fixed costs while their operations are at a complete standstill during these difficult times. It’s a writing on the wall that, we are a few months away from any sort of recovery. Once the threat is over, it will be naive to assume a hockey-stick recovery curve.

I believe, businesses will have to rewrite their projections and more importantly, rewrite their strategies in the wake of an uncertain environment. It seems improbable that anyone will meet their revised muted projections, too. Impact of the same shall be visible in valuations and capital markets - looking at the impact on the global indices, we can say that heavy resetting has already occurred. In simple terms, economies shall reset.

The Silver Lining

1. Social settings may have far-reaching positive impact on caring about humanity;
2. Personal hygiene and cleanliness will now be a way of life;
3. Businesses will try frugality and taking the banking ecosystem for granted will change;
4. Value for money will be the new mantra; and
5. Markets will be saner - factoring appropriate risk to their portfolios and valuations.

Expectation Reset

People may start getting habituated with living with less. And this will be an amazing change.