top of page

Sectoral Pitfall due to COVID-19

Some of the strongest economies around the globe are struggling to cope with the situation in the wake of an unprecedented demand shock and a shutdown of all key economic activities that drives growth. Many Indian sectors are now in critical need of a relief package.


Humans have survived many viruses like smallpox and have learnt to live with many like measles. But the "new normal" has an eminent effect on many sectors. In FY21, we do expect to see the first-quarter earnings of several industries, particularly of discretionary spends such as related to travel, tourism, entertainment, etc to get impacted.

Sector impact of covid

The MSME, the Micro, Small and Medium Enterprises (MSMEs) are the backbone of all Indian sectors and often engaged in manufacturing and export activities — two key drivers of the Indian economy.

Almost all MSMEs are out of action due to the lockdown disturbing all production activities at major firms across sectors. MSMEs are reeling under crisis and have no money to pay their employees. Majority of the small units may have to shut shop if the situation remains unchanged. Even after getting support from the government, many of them are almost on the verge of losing their control over losses and unable to generate revenues as well and fighting for their survival. It will be very important for the government to take initiatives and announce more relief packages for MSME's.


Due to the COVID-19 situation, people have reduced their purchases to save their income for future situations. The Textile sector has been affected moderately because the demand for essential commodities like masks will not be negatively impacted.


The Pharmaceutical industry has seen higher sales than expectations due to an increase in testing and caution of the people. There is also a pharma vision which focuses on making India a global leader in end to end drug and API. The Department of Pharmaceutical has planned to launch a venture capital fund of INR 1,000 Crore. This fund will provide support to the start-ups in the pharmaceutical industry. The venture capital fund will be used by the companies to carry out research and development of novel active pharmaceutical ingredients and formulations. This move would give a boost to the domestic pharmaceutical industry, and provide cheaper loans.


Few of the businesses which are least affected include FMCG(Fast Moving Consumer Goods) because this segment continues to see good demand for their products. Paints and adhesives firms may see some disturbance in the demand but will benefit due to lower input price. The cement industries should benefit from sustained lower energy prices. There might be demand compression due to nationwide lockdown. But most cement producers have manageable debt.

Sector impact of covid

The Automobile sector is also facing a lot of issues with most of the plants shut, there is a sharp drop in production and sales. Many companies have also announced pay cuts. The automobile sector has also seen a significant reduction in demand.

The real estate sector is also facing problems, housing sales will fall 25-30 % according to the ANAROCK group.


The Aviation sector has been experiencing pay cuts and flurry of layoffs. Many employees have been forced to take leaves by aviation companies. The global aviation activity has sunk over 66% due to the pandemic. Whereas now the government has resumed the interstate travel via trains, aeroplanes; due to which there might be some improvement in the aviation sector.

The recent decline of the crude prices will be beneficial for the aviation sector only once the normal situation is restored and when the airlines operate at optimum utilization. Companies ability to manage fixed costs will be the key for survival.

There will be a significant improvement in business in the second half of FY21, supported by government and liquidity from RBI. It is expected that the recovery period will gradually start from Q2FY21.


Tourism and hospitality sector is also suffering a lot due the COVID 19 as people have stopped travelling. The industry is under a lot of pressure; the government has to take steps to give minimum wage to the people affected from the pitfall of the tourism sector.


For Financials, there are two types of businesses, one is fee-based and the other are corporate lenders. Fee-based businesses like general insurance, mutual funds should benefit from higher awareness of their products given the circumstances and after the situation is improved, there is a likelihood of improved sales velocity. The corporate lenders like Banks focusing on lending to corporates had seen a spike up in NPAs. Over the past two years, they have been recapitalized and NPAs have been recognized and sold (in many cases). The NPAs are likely to rise by 10.2-10.5% by September.

The pandemic has led to the global recession which resembles the recession of 2008 to 2009. We can clearly see the net job loss and total employment according to the firm sizes in the chart above. There is a 62.1% of net job loss for the firms with the firm size of 1-249 employees where not even 50% was the total employment under this firm size.


The real hit from this crisis is on the weaker section of the society. This section of society has seen a sharp impairment to their earnings and would require support from the government in the form of partial payments of interest dues. There are a lot of migrant labourers who got unemployed due to the pandemic. The life of such migrants got affected the most because they were the daily wage workers and hardly any of these workers had savings for the lockdown period. The government announced relief measures but it is hard to ensure whether benefits are reaching to all or not!


71 views0 comments

Recent Posts

See All

Comments


bottom of page