Hello everyone… Hope you all are well and staying safe.
What is the most important asset that both companies and investors possess in times of economic slowdown?
You guessed it right. CASH.
The first priority in today’s times is good health and after that is survival in the economic slowdown. And to maintain both what is needed is CASH.
Companies sitting on huge cash in their balance sheets are not only the most prospective candidates to survive in this pandemic but also will be the ones who can become game-changer by implementing new ways of doing business.
The honorable PM, Mr. Modi has appealed to all businesses not to cut the salaries/wages of people who are at home and not able to work due to lockdown in the country. Tell me… Will every business be able to do so?
What about the industries which are worst impacted… hospitality, airlines, travel & tourism, shopping malls, auto manufacturing? What about the companies where demand has dried up and have debts to pay off? What about the real estate players where daily labourers have moved out of cities to their hometowns as their jobs are not secure? What about the corporates who have a large part of their earnings from the USA and Europe which are the worst hit countries of this pandemic?
The economic slowdown is inevitable. Certain companies will be forced to shut down completely while others have already shut down partially or planning to do so to sustain. Movement of goods is only happening for essential items and health equipment.
So the big question is who is going to survive for the next 9 to 12 months till the demand rises up again and the consumption increases. Only the ones who will have the capability to respond to this changing economic situation and create new solutions for their clients. Companies which can create value even in these times of distress. And for this, you need cash in the banks and unleveraged balance sheets.
Ask people who have lost jobs in the past or are at the risk of doing so with loans on their heads… How are they planning to survive even after the lenders have announced a 3-month moratorium on their term loans? At the end of the day what brings food to the table is cash in hand.
Coming back to investing, look for companies like TCS, Infosys, SBI, RIL, HDFC AMC, etc. which are great businesses with high cash reserves to tide over this economic slowdown.
So dear friends “jeetega wohi jiske paas cash hoga”… because CASH is KING.
Happy Investing!
Warm regards,
Mayank Talwar