COVID Impact on Different Sectors | Which Sector to Invest in?

Economic and Sectoral Impact of COVID Pandemic

Introduction

The COVID pandemic has reported a severe impact on different sectors and the overall economy. In this article, we will discuss the impact of COVID-19 pandemic on different sectors. According to the intensity of the impact, we have divided the sectors into low impact, medium impact and high impact sectors. This is a good opportunity for the investors to restructure their portfolios. Lets discuss how an investor should select companies from these sectors.

COVID Impact on Different Sectors| Which Sector to Invest in?

• The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. India’s GDP growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The detailed Economic Indicators Report is available on our website.
• The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy.
• Notably India had also been witnessing a pre-pandemic slowdown, and according to the World Bank, the current pandemic has “magnified pre-existing risks to India’s economic outlook”.
• Lets see how severely COVID pandemic has impacted different sectors.

1. Sectors Least Impacted by COVID Pandemic

Let us start with the sectors that have least impacts by the pandemic.

• Agricultural Produce –  This sector is directly linked to the agricultural sector. Here, most of the products come under essential items. Hence, there was no demand based impact on this sector. However the supply chain constraints affected the sector to a certain extent for 1-2 months.
• Telecom Sector – Due to the social distancing norms in pandemic, almost all offices in India resorted to ‘Work from Home’ model, which gave this sector a boost in demand due to increased demand for internet data, online connectivity as well as voice communication.
• FMCG – It is a need based sector. Most of the companies coming under FMCG manufacture products that come under ‘essential items’ category and hence their sales are not much hampered.  

• Food Processing – As the restaurants were close due to nation wide lockdown, there was an increase in at-home cooking. Ans it augured well for ready to cook, ready to eat food products.
• Online Education – There is hardly any listed player in this sector. However there are many private players and they have seen many private equity investments. Along with online education, online trading, mainly discount brokers have seen traction during this time. They have given a tough competition to traditional/ full service brokers.
• Seeds and Fertilizers – Since the raw materials required for agriculture also come under essential commodities, this sector too was not much affected.
• Sugar – As sugar also comes under agricultural produce and it is an essential commodity. So it was least impacted product. It has good prospects in the future on the back of expectations of good monsoon.

Which Companies to invest in ?

• Most of the companies operating in these sectors have fared well in current times and we suggest investors to stick to the major players in these sectors.
• Investors can consider the leaders in each of these sectors with a debt-free status, high reserves and strong balance sheet.

2. Sectors with Medium Impact of COVID Pandemic

Now, let us have a look at the sectors having medium impact of pandemic on their revenues.

• Auto ancillaries – This sector is closely related to auto industries, which is not doing so well right now. However ancillaries sector is seeing good demand from rural economy mainly due to increased sales of tractors.
• Consumer Durables – Most of the population is working from home. As a result, there is a rise in demand for consumer durable products like AC, washing machines, dishwasher, etc to make work from home a comfortable experience.
• Housing Finance – As India adopts the ‘Work from Home’ model in future, people will prefer having comfortable work spaces at their homes. It will increase the demand for residential real estate and in turn, the demand for co-working spaces, commercial real estate may decline. This will benefit Housing Finance companies in longer term.

• Automobile OEMs and Logistics – Due to increase in preference for personal mobility and in an attempt to avoid public transport, 2-wheeler and 4-wheeler automobile original equipment manufacturers may see a good traction in demand.
• Power – Power consumption levels are rising since the easing of lockdown and have reached almost pre-COVID consumption levels. However, due to debt burden on power companies, investors should be cautious before investing in this sector.
• Electronics – Mainly due to the thrust on Made in India, companies supplying raw materials to electronic companies are expected to do well in medium-long term.

• Banks – EMI Moratorium and higher COVID-related provisions will be present for next 2-3 quarters. However post that banks are expected to perform well as most of the sectors will have stable revenues by then. Thus it will improve overall credibility in the market.
• Mining – The migration of laborers to their hometowns has a big hit on this sector. However as the issue will resolve in next 2-3 quarters, things will return to normalcy slowly.
• Healthcare & Pharma – The current pandemic has favoured this sector. However, elective surgeries have taken a slump. This has led to surge in demand for only specific kind of medicines and most of the hospitals are occupied because of COVID patients. This will impact the revenue of these companies to a certain extent in medium term.

Which companies to invest in?

• Companies involved in these sectors have seen good correction over the last 3 months, except for pharma sector.
• There is a recent recovery in some companies after easing the lockdown norms.
• However it is important to choose companies which are market leaders and having least debt to equity ratio for investing.
  • It is because the leveraged companies will find it difficult to payback debt.
  • Revenues significantly impacted by the nationwide shutdown amid Coronavirus pandemic. However, interest or finance cost continued for the leverage companies.
  • And it will have an severe impact on companies free-cash flow generation.

3. Sectors Highly Impacted by COVID Pandemic

We have discussed the sectors facing low as well as medium impact of COVID-19. Let us take a look at the sectors which have severe impact because of COVID-19. We suggest that for investment, the investors should completely avoid the companies operating in these sectors.

• Aviation, Hotels and Tourism – Since travelling was severely impacted due to the pandemic, these sectors have suffered quite a lot. Experts are expecting that 30-40% of the industry will be wiped out in near term due to unprecedented times.
• Gems and Jewellery – As people are avoiding discretionary spend and more focusing on cash conservation, it has affected the revenue of premium/luxury goods.
• Multiplexes – Due to the social distancing norms , Multiplexes in India were shut down since March’20. This has severely impacted the revenues and online platforms pose a threat in future as new movies are being released on such platforms.

• Micro Finance Institution and MSME – Companies in which more than 90% of borrowers have opted for EMI moratorium are quite risky, as the asset quality might deteriorate once the moratorium period is over, dragging the overall profitability. MSMEs are impacted due to labour problems and liquidity crunch in the economy. There is an overall risk averse attitude of banks towards lending to MSMEs, leading to difficulty in credit availability.
• Textile – Since it is a global issue, exports are severely affected and as most of the textile revenue is export based, this sector is also severely affected.
• Ports and Seafood – Seafood is seeing a good demand, however due to lack of proper supply, companies are missing out on revenues.

• Newspaper and Advertising – These industries are also impacted due to shift in consumer preferences leading to lower discretionary spend. Companies are exercising cost control methods and have reduced advertising spend. This impact is expected to be for a longer term given the GDP contractions and lower disposable income in the hands of consumer which results in deferring the spending.
• Retailing – This sector is also affected due to changing consumer preferences and extended lockdown as many malls across the nations are still closed. Malls, supermarkets with only essential items are allowed to remain open, however remaining segments like clothing, accessories are still closed, thus impacting the revenues.