'Volatility is froth', focus on core economic, business variables: KM Birla

The year 2020 proved to be as eventful for the markets and economy as for the rest of the world. From commodities to equities, every segment witnessed unprecedented highs and lows on account of the pandemic. However, this volatility "is a frothy surface that floats on top of business and economic tides that move in a much more predictable fashion," says Kumar Mangalam Birla, the Chairman of Aditya Birla Group.

Referring to the historic decline in oil prices, which briefly ended $37 below zero, and copper registering an equally remarkable price range of over 70 per cent, Birla remarks that the change in the underlying earnings prospects of associated companies or in the consumption of these commodities was way lower than what these "market gyrations" portray.

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"What this tells me is that we should not get unduly disturbed by this excessive volatility... It is far more important to focus on core economic and business variables, the demographic drivers of market trends, and the technological drivers of supply chains. These fundamental variables don't change as discontinuously as prices and indices suggest," the Aditya Birla Group Chairman states in his annual epilogue titled '2020 - 21: My Reflections'.

Birla says despite the doomsday prophecies of "irreversible shifts in consumer demand and the evisceration of sectors, recovery across industries has been swift. To exemplify, he quoted the successful Airbnb IPO in contrast to predictions that travel was dead in near future.

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"In India too, the initial prognosis and narrative of experts proved to be excessively pessimistic. Witness the strong recovery across manufacturing sectors, cement to paints, and automotive to aluminium. Several indicators for India, including GST collections, electricity demand, railway freight movement, and passenger vehicle sales have reverted to positive growth numbers in recent months," Birla says.

Specifically mentioning financial markets, Birla notes that it will be a quarter or so before the level of "froth" in the euphoric markets can be determined. "Perhaps, we still need another quarter or so to confirm that this booming trajectory is here to last. The economists, I am told, are now searching for alphabets that will adequately describe this trend of cautious optimism," he says. "However, outcomes at a company and individual level are uneven."