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  • Writer's pictureTikona Capital

Recession ! To fear or To Strengthen ?

Updated: Sep 25, 2023

Most investors' primary concern right now is the #recession! The majority of news stories and #socialmedia conversations centre on how the #consequences of the recession are fostering fear and anxiety. While the recession has an immediate effect on the economy, it also plants the seeds for a future #economiccycle!

Current scenario

Recession expectations have grown as a result of high inflation, tighter liquidity, increasing interest rates, and #demand destruction in the #developed world. In the US, the likelihood of a recession has increased from 15% to 45% in only three months! The Bank of England increased interest rates by 50 basis points because it now believes the UK economy will enter a recession by year's end that would run until late 2023.

Back home, the #financeminister gave the house the assurance that there is no chance of a recession or #stagflation in India, and that it will continue to expand as the world's #fastest-growing #economy. The #RBI maintained the FY23 growth rate projections at 7.2 percent while raising rates by 50 basis points last week. #Leadingindicators i.e decline in global commodity and global #food raise the likelihood that both inflation and #interest rates will #peak.

History of recession

A recession is characterised by a dip in the overall #GDP for two straight quarters, as well as a corresponding drop in #employment, earnings, revenues, and economic #production. There have been four such instances of negative GDP growth in India since independence. They saw contraction of -1.2 percent in FY58 due to the Balance Of Payment #Crisis, -3.66 percent in FY66 due to the severe #drought, -0.32 percent in FY73 due to the #EnergyCrisis and -5.2 percent in FY80 due to high oil price driven Balance of Payment Crisis. Given the #potential for growth, India has seen significant change over the previous two decades and has not had a recession since 1980.

There have been seven recessions in the US during the past 50 years, which were caused by the war, oil inflation, #DotCombubble, #housingbubble, and #COVID. These seven recessions have lasted an average of 11 months, with the longest lasting 18 months (Housing bubble) and shortest being COVID-19.

Recession strengthens strong #businesses

Even if there are difficulties during recessions, productivity becomes more of a #priority. Strong firms get stronger as weaker competitors leave the market. Most businesses begin by considering how to give their #consumers more value. Spending on discretionary items is reduced to redirect funds to #projects that will produce better products. Old items are assessed for their ability to compete in the marketplace. To maintain smooth commerce, relationships with #distributors and #vendors are reinforced.

Most successful businesses were founded during the period of recession Hewlett Packard Enterprise (1937-1938 Recession), Microsoft (1973-1975 Recession), Uber (2007-2009 Recession), Airbnb (2007-2009 Recession) and in India, unicorns like Zomato, and Icertis were also founded during the 2008-2009 recession.

What to do ?

Based on prior history, an investor's #productive career of roughly fifty years (25 years-75 years) is projected to see about 7-8 recessions, which may range about 8 -18 months (covid was just a couple of months). While these #times may not last more than 20% of one’s lifetime, many people avoid #investing completely, sell their investments in expectations of better price or stop investing their monthly savings owing to fear of such downturns. They deprive themselves of 80% of their lifetime in the growing economy and growing #equity investments!

In our view, such periods of market cycles are to cherry pick the portfolio of companies who are market leaders and continue to invest in #capability building, #market expansion, product expansion, #geographical expansion, gain market share due to weak players exiting the market, strengthen the #balancesheet and keep cash conversion flowing.

While the developed market is expected to experience recession, India is expected to grow at the fastest rate globally. We continue to believe in India Story and re-iterate our themes for decade #techification, #financialisation #Consumerism #Globalisation #Formalisation and #CleanEnergy.

Strengthen your portfolio by subscribing #ThemesForDecade at or which is a portfolio of robust businesses generating healthy returns on equity and capable management to generate a superior risk-adjusted return for a longer tenure.

Stay healthy ! Stay Invested ! Strengthen your portfolio during such times!

Sumit Poddar

Chief Investment Officer & Smallcase Portfolio Manager

Tikona Capital

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