The World As We See It

March 2021



After all the drama, relief and euphoria, the USA got a new President who has not wasted any time and hit the ground running, so to say. 

Can you imagine it’s already been a year since the lockdowns began? Time indeed passes by so swiftly. On one hand, the coronavirus is still lurking around and new strains are emerging across the world even as the global vaccination program picks up pace with over 304 million doses already administered across 114 countries at a rate of nearly 7.9 million doses a day at the time of writing. Delivering billions of vaccine shots worldwide is among the most severe logistical challenges we have ever faced. On the other hand, central banks are providing unprecedented levels of liquidity, as depicted in the image, to financial markets with the latest being a US$1.5 trillion fiscal stimulus package being passed by the US congress. 

This seems to be the fundamental driver of equity markets and other asset classes. This liquidity deluge has resulted in negative real yields with nearly three-fourths of global bonds, both government and private, offering yields under 1% (Source: Deutsche Bank). There are early signs of some up move in interest rates but consensus feels it’s still too early to start getting worried about it. In a recent statement, the IMF said it expects 2021 global growth rate to come in at 5.2% after a 4.4% COVID induced contraction in 2020. The two significant risks to global markets, in our opinion, are:

(i) derailment of the vaccination program or vaccines unable to manage mutations and 

(ii) increase in global interest rates.


There is much to cheer from a macroeconomic perspective in India. The IMF put out a much-improved estimate of India's GDP growth lowering the current fiscal contraction to 8% from its earlier estimate of a 10.3% contraction. At the same time, they increased their fiscal 2021 GDP growth estimate to 11.5%, which is 2.7% higher than its previous estimate. Foreign exchange reserves scaled to a new high of US$586 billion, and the INR appreciated to nearly 73. Consumer demand escalated with new vehicle registrations up 10% y-o-y in December and residential real estate sales returned to 52% of pre-COVID levels (up 51% Q-o-Q) (Source: JLL) on the back of low mortgage rates, stagnant prices and increasing affordability.

India has embarked confidently on its vaccine rollout program and given the population, and its distribution remains a considerable challenge. Its success is vital to ensure the ongoing economic recovery and a return to normalcy. In its first phase, India plans to vaccinate nearly 300 million people of which 21 million have been administered so far. The ongoing farmer protests and their blocking of highways leading to New Delhi remain worrisome. These are among the first instances of a show of strength against the current political establishment. The union budget has lived up to its expectations of rolling out steps to put COVID-battered India on a sustainable growth path. 

Startup Ecosystem

Concluding a tumultuous year for most, 2020 showcased the resilience of the startup ecosystem. While the lockdown affected capital inflows in the second quarter of the year, the latter half witnessed a strong bounce back. As predicted in our last letter, the third quarter of FY 20 witnessed the highest number of deals and investment amount in the year. We saw an uptick of 10.7% (from 345 to 382) in the number of transactions closed and an approximately equal growth in the capital invested (from US$3.17 billion to US$3.49 billion), while the average deal value remained at the ~US$9 million level. For the year as a whole, 2020 saw a modest increase of 6% in the number of deals (from 1,116 to 1,188), while capital deployed decreased by 31.5% (from US$14.5 billion to US$11 billion). The average deal value, too, fell by 40% (from US$13 million to US$9.3 million). Showing solidarity with emerging businesses, Prime Minister Narendra Modi recently announced the launch of a $137 million (INR 1,000 crores) seed fund focused on supporting startups.  

COVID brought forth many changes in our lives. Global productivity levels improved as businesses adopted newer, more efficient ways to work. Technology deployment disrupted existing business models, driving demand for AI, automation and industrial software among other areas. Businesses found it easier to build brands by leveraging social networks, on one hand, while some found it equally challenging to maintain their brands’ value on the other. We expect some of these to be temporary in nature and some more permanent. Our hypothesis is that these changes will have a profound impact on how consumers and businesses interact with each other and in effect, pave a new path for many new business models to emerge. The coming times will definitely be interesting for startups and investors alike. As we recently witnessed the Indian cricket team achieve the near-impossible by defeating a stronger side against all odds, so we see the emergence of new technology-enabled businesses challenging dominant players across sectors.