The post-COVID economic dichotomy of two Indias

Amit Sahita

February 14, 2022

COVID-19 and its aftermath have led to the emergence of two distinct Indias. Many families have lost their earning members, faced pay cuts, faced job losses or incurred heavy medical expenses. All these situations have resulted in extreme economic suffering. Several businesses have permanently shut due to regularly imposed lockdowns. The Immediate sufferers were hotels, restaurants, malls, retailers, multiplexes and airlines, to name a few. All owners, suppliers and employees of these sectors have been plunged into a long-drawn economic crisis.

The problems have been compounded by very high inflation and relatively high unemployment. Rising inflation, led by increasing fuel and edible oil prices with food inflation hovering around 10%, has been especially hard on middle-class and poor Indians. The Wholesale Price Index (WPI) also rose from 1.95% in December 2020 to 13.5% in December 2021, and the Consumer Price Index (CPI) rose from 4.6% in December 2020 to 5.6% in December 2021.

On the other hand, many from the information technology (IT) and pharmaceuticals sector have benefited due to the rapid growth of their industries. Another quickly prospering space is the startup economy. India is now home to 89 unicorns – startups that enjoy a valuation of over a billion dollars in their latest funding round. Indians associated with IT, pharma or unicorns present a picture in stark contrast to Indians who have suffered the dire consequences of COVID, inflation and unemployment. These Indians are filled with optimism and are willing to take bigger risks. We can see this on display on shows like Shark Tank India.

This dichotomy is also visible in the investment space. As an investment advisor, I am seeing many families cutting down on their goal-based investments and scaling back their projections based on an adverse change in circumstances. Meanwhile, others from the IT and pharma sectors are making fresh allocations. Some of these investors are so optimistic that they are discussing fresh ideas like investing in startups and other newer avenues available to investors in India.

FOMO kicks in

The uneven economic growth has led to a fear of missing out (FOMO) effect in many common investors, who are experimenting with their finances like never before. Many are veering towards very risky assets like cryptos, options trading and commodity futures. Another prime example of the FOMO effect was visible during the Paytm IPO in which 9.8 lakh retail investors invested Rs 1,830 crore – India’s largest IPO. These investors have lost almost Rs 1,000 crore as of today. In contrast, only 18 equity schemes out of a universe of more than 850 equity and hybrid mutual fund schemes participated in the IPO. This suggests that most professional fund managers analysed valuations and decided to stay out. This is an example of information asymmetry because of which well-connected fund managers are at an obvious advantage over common investors.

The Nifty rose from a low of 14,300 in March 2021 to a high of 18,500 in October. This must have given joy to India’s young new investors. The number of demat account holders has been rising at a brisk pace, from 3.6 crore in 2018-19 to 7.5 crore by December 2021. But, since October 2021, the Nifty has dropped to 17,300. These new investors have never before seen a deep correction. All this volatility will certainly cause them to question their choices. Many may choose to return to traditional forms of investment such as bank fixed deposits, Life Insurance Corporation of India policies, public provident fund and the like.

From a short-term perspective, I expect markets to remain volatile. Rising inflation in India and the US, the threat of rapid rise in interest rates, very uneven economic growth are not bullish signals for markets. The Nifty is likely to remain within a broad range of 16,500 to 18,500 in the next six months.

Common mistakes

Those not acting out of FOMO are acting out of fear. They end up making the following mistakes:

  1. Buying insurance-related investment products like ULIPs, which yield very poor returns and are locked in for a long period of time
  2. Buying a second house on loan and paying EMIs to avoid the volatility of equity markets in an effort to generate future income in the form of expected rentals
  3. Keeping the money in their salary accounts for long periods of time and making do with 3%-3.5% interest on it, hoping that equity markets correct and they get an easy, cheap entry point

All these options are bound to have a negative impact on investors’ corpus. My advice is to approach investments with a financial plan. Decide allocations based on risk profiling and financial goals. Their portfolios, if made with asset allocation in mind over a long-term perspective, will yield better returns than ULIPs and real estate. Also, they will be far easier to liquidate, less risky and easier to monitor and review.


Indian GDP growth has shown a rising trend except for FY2021 when COVID forced us into lockdown.  If it grows at 7% and inflation remains around 4%, absolute growth will be 11%. Corporate profits usually outdo absolute GDP growth by an average of 2% to 3%. This means that the long-term investor should continue to enjoy returns of 13% to 14%. The only condition being that investments be made with a 10+-year perspective.

So, despite the gloom and doom, despite the optically high valuations, I advise investors to keep investing and remain invested in Indian equities. India’s inherent strengths and entrepreneurial zeal will see us through this dark phase.

The writer is co-founder of Namita Invest India, an investment advisory firm established in 2014. If you would like to get in touch for any investment-related advice, write to or visit