The IT sector is now under pressure due to fears of a recession.(Representational)

For most people, the pandemic is over. In fact, some have moved on in their lives to such an extent that they think of the events of 2020 as ancient history.

But 2020 wasn’t a long time ago. It’s effects are still being felt around the world today…and will be felt for a long time.

I clearly remember the announcement of the lockdown. I remember feeling depressed as a fog of uncertainty filled my mind. In late March 2020, I had no idea how things would play out six months, one year, or five years later.

All I knew at that time was that the world had changed forever…and not in a good way.

It was a disruptive event like no other. Hundreds of millions suffered a loss in their standard of living, the repercussions of which are being felt to this day.

Entire industries teetered on the brink of collapse. Many millions found themselves unemployed without a hope of finding a new job because there were none. It felt like human civilisation had come to a standstill.

In that scenario, it was natural for people to talk about new paradigms, all the new ways in which the world operate.

This find of thinking permeated financial markets. Everyone and their uncle were putting forth theories explaining why some assets would soar and why others would collapse. It seemed like everyone, even novices, had an opinion on complex financial topics.

Surprisingly, this theorising continued for a long time. Even as markets recovered after the crash, new theories replaced old ones. For a time, it seemed stock markets were being driven by narratives alone.

Thankfully, that phase is over. These days, the market only cares about hard realities. Fancy stories have been thrown in the trash were they always belonged.

In this process, over nearly the last three years, many ideas that several people believed in, have been disproven…and that too, quite decisively.

In this article, we will examine 5 such ideas that were all the rage until recently. These are ideas during the pandemic which have been proven wrong.

• Pharma stocks are the best investments

This one is easy to understand. During a pandemic, the companies that make medicines seem to be a natural choice.

Pharma stocks did very well during 2020-21. The BSE Healthcare index went up from around 11,000 to 26,800 in eighteen months. That’s right. Between March 2020 and September 2021 the index soared nearly 2.5 times.

Individual stocks turned into multibaggers. But the boom did not last. As they say, ‘What goes up must come down.’

The BSE Healthcare index fell more than 20% within nine months between September 2021 and June 2022. This bear market in pharma stocks ended the narrative driven rally. Diagnostic stocks were especially beaten down.

However, this correction has also brought about several long-term investing opportunities in the sector.

Pharma companies that learn the right lessons from the pandemic, scale up in the value chain, and deliver profitable growth, will create a lot of wealth for shareholders. So while it’s true that pharma as a sector may not be the best investment, select pharma stocks should do very well.

Here’s our take on the sector…

According to industry estimates, the Indian pharma industry is expected to grow to US$130 billion (Rs 10.6 trillion) by 2030.

In the coming decade, India could potentially become the leading provider of medicines across the globe as the country enjoys the benefit of low cost of manufacturing pharma products.

Other than the cost benefit, the onset of the pandemic triggered a massive growth journey for the Indian pharma sector. The demand for medicines, healthcare equipment, and related products increased exponentially over the coronavirus plagued years.

Earnings of top pharma companies boomed.

First, pharma companies strategically developed global alliances with multinational pharmaceutical businesses. This gave them better access to crucial drugs or new treatments.

Second, additional opportunities for the sector emerged through governmental collaborations and private players combining forces in the development of vaccines.

Overall, the pharma sector has a proven track record of offering stability, value, and consistent returns to investors.

In the last decade, the BSE healthcare index has risen at a compounded annual growth rate (CAGR) of 12% whereas the Nifty pharma has returned approximately 10.9%.

• Tech stocks will go to the moon

Well, this one turned out to be correct…for a while.

Tech stocks did go to the moon. The US NASDAQ index lead the rally and soared 2.3 times in about twenty months since March 2020. This spectacular up move drove prices of individual tech stocks to record levels.

In India, the IT sector boomed as the work from home trend enabled lower costs and drove revenues higher across industry verticals.

However, things have changed quickly… and how!

The IT sector, one of the strongest sectors in the country, is now under pressure due to recent global crisis and fears of a recession.

So far this year, the Nasdaq Composite index, which has the big tech stocks like Amazon, Tesla, Google, among others, has slipped by more than 28%.

Indian IT stocks are also facing high attrition as employees are leaving in large numbers for better opportunities.

In the final quarter of financial year 2021-22, most Indian IT companies reported an employee attrition rate of more than 20%.

Fear of a global recession in 2023 has hammered the sentiment in this sector. This is a complete reversal from the bullish sentiment of 2020-21.

However, all is not lost. If the recession is not as severe as expected and if these companies get attrition under control, then they could do well.

Watch this space.

• Listing gains in IPOs are a sure thing

When new age tech stocks like Zomato, Nykaa, and the like started to hit the IPO market, the craze for listing gains was extreme.

The whole year of 2021 was an extraordinary one for the IPO market. I remember friend and family talking about how IPOs are a must when it comes to investing in the stock market and how they offer quick listing gains.

Well, they weren’t wrong…at least initially.

2021 was indeed a historic year for IPOs. In 2021, 63 companies came out with their IPOs and raised around Rs 1 trillion from the Indian markets. This is the highest ever amount raised in a single year.

The market expected the IPO market will continue with the same speed even in 2022. Especially with mega IPOs like LIC around the corner.

But did that happen?

No. It is clear that companies are cautious and not coming out with their IPOs with the same enthusiasm as in 2021.

Factors for the change in sentiment are not hard to find.

The correction in the first half of the year, the Russia-Ukraine war, relentless selling by FIIs, and most importantly, rising interest rates.

Will the IPO market revive?

Well, there are hopeful signs as some companies are hitting the primary market again, Sula Vineyards and Landmark Cars being two prominent ones.

Even if the IPO market revives, we believe it’s unlikely to scale the frenzied levels of 2021 any time soon.

• Travel and Hospitality sectors are dead

This one turned out to be an epic blunder. All those investors who sold their hotel, airline, and travel stocks, and didn’t buy them back after they fell, are really regretting their decision.

Not only did these sectors not die, but they have also come roaring back. Revenge travel wasn’t a thing before the pandemic. Now it’s commonly practiced all over the world.

When the pandemic hit, no one thought leisure travel would bounce back strongly. But it did. And so did the entire hospitality industry. If there is one industry that epitomises the recovery from the pandemic, this is it.

This kind of spectacular comeback of an entire industry that was left for dead, holds an important lesson for investors: Never write off any sector, no matter how bad the situation might seem.

• The world will not recover

Well, the world is well on its way to recovery.

There will be many setbacks: recessions, inflation, rising interest rates, wars, geopolitical disruptions to economies, and much more. But the recovery will happen.

At the end of the day, people just want to get back to their lives. They want to go back to how they liked pre-2020…and many already have.

While the pandemic may have changed the world forever, it has certainly not changed fundamental human behaviour.

And that means the foundations of investing, which is based on human behaviour, also will not change.

So if you’re looking for stocks to buy today, the fundamentals of the company and the valuations of the stock are just as relevant now as they were before the pandemic.

And as sensible investors, we must never forget that.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…