The Indian economy has seen turbulence ever since the pandemic hit in 2020, with many companies seeing a downturn in its immediate aftermath. Experts say one of the consequences of such hard times and continuous changes is the emergence of risks that investors must be aware of.
Hersh Shah, CEO, Institute of Risk Management, India Affiliate says, “In 2021, however, many industries have also consolidated and grown exponentially, while 2022 is poised to be the year when the economic landscape is expected to stabilise as pandemic-induced disparities are resolved.”
Accounting for these risks is critical to staying vigilant and preparing for timely corrective actions to protect one’s investment portfolio.
Artificial intelligence risks
AI has emerged as a game-changing technology across different sectors. However, AI poses its own risks, including privacy violations, job losses due to automation, and the resulting socioeconomic inequality. In addition, there is also a danger of algorithmic bias caused by faulty data.
“Risk mitigation may require new regulation strategies and more AI-human collaboration to detect instances of bias. Investors, thus, must study different organisations carefully to analyse how well they are combating such risks; this will help them choose the right companies to invest in,” explains shah.
Fake news and reputational risks
Amidst rising concerns on social media facilitating fake news, industry experts say no organisation can afford to ignore the potential damage caused by rumours and misinformation. The consequences include serious monetary costs to the world economy with one estimation putting just the damage caused by misleading lawsuits at USD 78 billion each year, which is further compounded by USD $39 billion in stock market losses.
Shah says, “It is imperative that enterprises build trust and loyalty among customers by encouraging an organisational culture based on ethics, integrity, and strict compliance. Accordingly, investors must factor in how successful companies are achieving this as they decide which stock to put their money into.”
Supply chain disruptions
The global supply chain disruptions during COVID have exposed the drawbacks of being over-dependent on any one region for manufacturing support. “Investors should look at purchasing stock of companies that have a strong network of suppliers and a risk mitigation strategy for such eventualities, as they are more likely to weather such difficulties successfully,” adds Shah.
Thanks to an increasingly globalised world, geopolitical events have far-reaching consequences on the world economy. Sanctions or a crisis in one country, experts say can result in the movement of market players to other regions, leading to changing dynamics in the world economy.
Shah explains, “Every investor should, therefore, be cognizant of emerging geo-political risks and their ability to influence the market, and should be able to foresee when moving their money becomes a necessity.”
Industry experts point out investors should also pay close attention to a company’s ESG (Environmental, Social, and Governance) compliance and reporting to identify the right stock to invest in. “Whether global recovery will continue and further consolidate in 2022 is yet to be seen. A lot will depend on our ability to anticipate developments, opportunities, and the accompanying risks,” says Shah.
He further adds, “As the world continues to change around us, investors must apply the lessons learnt in the last two years, staying vigilant and agile towards emerging risks, and being more judicious in how they distribute their investments across a variety of stocks based on a number of parameters.”