April 14th, 2020

Opportunity Cost
For India, while the negative effects of the lockdown on the economy are being forecast and quantified with GDP de-growth estimates of 2-3%; or a recession, what is not being discussed as vociferously is the “opportunity cost” – the number of lives saved because of the lockdown in India. What is not quantifiable is often seen as abstract and not focused on. The debate in the US now is also about how many lives could have been saved had many things been done differently and sooner.

Decision Making
In thinking about the Covid-19 pandemic, there has rarely been a time in recent memory when we know so little about something. However, we have had to and will continue to make huge decisions based on this something of which we know very little.

Rather than right or wrong; what was done in time and what was delayed will be as important in deciphering why some succeeded while others did not, relatively. Governments have had to very quickly assess incomplete information, data and the experience of other countries in framing their responses.

Companies have had to very quickly make decisions and put in place action plans with limited information. In a recent call with the senior management team of Bajaj Finance, the MD went so far as to say “we are flying blind”.

In most cases, one always functions on incomplete information and probabilities and therefore speed in decision making is extremely important. As with companies and businesses, as investments managers we need to be mindful of this dynamic – where we need to make quick decisions and where a more calibrated thoughtful decision-making process is required.

Going forward for some time, governments, policy makers and companies will continue to make very quick decisions with limited information and data and follow a trial and error method.

It’s important for us to think about how we think
In periods of extreme uncertainty with very few (if any) data points to fall back on, as investors, it’s even more important to focus on how we think and therefore why are we thinking what we are thinking. It’s not very important if our “forecasts” or “estimates” are accurate or not; we need to be sure of how we are thinking.

Insight versus information
The best money managers spend a significant amount of time framing their thoughts so as to communicate with their stakeholders, most notably their investors. It’s important to ensure that communications provide insights as opposed to information. Insight infers and encompasses “how we think” and provides allocators, investors and other stakeholders a mirror into the minds of their managers. We certainly strive towards this.

Leadership and Accountability
In a crisis especially, leaders stand up, step forward and hold themselves accountable. One of the most striking things that has been revealed through this crisis is how “disunited” the US really is. The lack of a cohesive, co-ordinated nationwide response is apparent and is leading to a very tragic set of events. Moreover, “the leader of the free world” seems to run as far away as possible from any kind of accountability.

Compared to this, despite the politics, it’s heartening to see how each state in India is stepping forward and working with the centre to ensure that the best outcomes materialise. The co-ordinated actions provide a sense of confidence to the people at large that despite the terrible effects on livelihoods and jobs, the heath aspect will hopefully not spiral out of control.

Its also heartening to see how some parts of corporate India have taken the lead in bearing the burden of the economic fall-out. The CEO and senior managers of Indigo Airlines taking a cut in pay or more recently Uday Kotak relinquishing pay for a year with a cut in pay for the senior leadership team puts out a good message.

In a recent interview, the CMD of Nestle India mentioned how one of the first things that he did during this crisis was assure his employees that there would be no job losses. He knows a thing or two about managing a crisis and as he mentioned, its so ironic that the company’s most iconic brand that was vilified just 5 years ago has become the go-to brand in this crisis.

The weeks and months to come will continue to reveal many aspects of governments, policy makers and companies as they frame their actions. For investors, it will be relatively easy to spot those businesses which exemplify “quality” and those that will emerge stronger through this. These will be businesses and leaders who display humility, compassion, leadership, agility and speed in decision making.

Posted by Siddharth Mehta, Founder & CIO