The damage caused by COVID-19 is not confined to only select pockets of businesses but it is a widespread malady that is expected to keep the economy sick for a longer time.
While the magnitude of the impact may vary from sector to sector, there are some sectors that have suffered the most and continue to suffer.
Market experts are of the view that aviation, retail, financials, realty and automobiles are the five sectors that are at the front among the sectors that are smarting under severe pain now.
Aviation
Aviation is the worst-hit sector, with both international and domestic flights cancelled on account of lockdown.
Directorate General of Civil Aviation (DGCA) has issued circular that no decision has yet been taken on the resumption of operations after May 4 and also asked the aviation companies to refrain from making any fresh-booking.
Industry experts highlight that the aviation sector globally incurs higher fixed costs and operates at very thin margins due to high competition from low-cost carriers (LCC).
The road ahead
"If the lockdown extends, the domestic aviation players are likely to see severe liquidity issues and consolidation in the sector. Even if the operations resume, we expect that the outlook for the aviation industry has degraded given travel restrictions and change in public preference which may stay for one to two years," said Vinod Nair, Head of Research at Geojit Financial Services.
"Currently it is very difficult to estimates the likely impact on the financials of the companies. We believe that Indigo is better placed given its market leadership position and less leveraged," Nair added.
Retail
Organized retailers are heavily impacted by the shutdown of malls and shops while the influence on essential goods retailers is minimum.
Nair of Geojit Financial Services believes this huge impact is likely to stay until the economy is opened phase-wise, having a maximum benefit to online retailers.
The road ahead
"While the overall outlook is likely to improve steadily post-recession, as employment and personal income in the economy reverse. The preferences of customers are likely to be cloudy in the medium-term and cut discretionary spending leading to falling in footfall, online seller way be able to handle this situation," said Nair.
Nair expects significant improvement in business in the second half of FY21 supported by government spending, liquidity from RBI, good monsoon and provided we have a successful lockdown and confidence of a remedy in the future.
Financials
With the COVID-19 pandemic leading to lower GDP growth for FY2021, the risk of a precipitous fall in loan growth is getting stronger.
Besides, there is a fear that the banks and NBFCs may see a rise in NPAs as COVID-19 has hit businesses strongly as several small and medium-scale industries are on the cusp of collapsing.
The road ahead
"In the near-to-medium term with growth likely taking a back seat, we expect NBFCs and HFCs to yet again focus on liquidity and risk management as key priorities. Post the lockdown, growth recovery would be divergent across business segments," said Motilal Oswal Financial Services.
Motilal said funding cost is likely to remain high due to risk aversion from the banking system and tight capital markets. With some normalcy returning, the brokerage expects securitisation or assignment transactions to likely pick up first from a funding perspective.
Automobiles
For a sector, which had been trying to overcome myriad challenges already, the outbreak of COVID-19 is no less than a curse.
In FY20, automobile volumes declined on account of weak economic scenario, price increase due to BSVI transition, inventory correction by OEM’s and Covid-19 impact in March 2020.
The road ahead
Kotak Securities expects the near term to be challenging for the auto sector due to lack of near term demand catalyst in view of economic impact from COVID-19.
"We expect the auto sector to gradually recover from the second half of FY21, supported by rural demand and expected improvement in the economic scenario. Financial performance of auto stocks in the near-term is expected to get impacted on account of lockdown and COVID-19," Oza of Kotak Securities said.
Realty
New constructions are stopped and sales have taken a hit. The sales are expected to take further hit in the near-term.
Experts say the extent of the impact is difficult to assess completely. The sector may face the risk of delay in new launches, the slowdown in sales, etc.
The road ahead
The recovery path for the real estate sector could be slow and painful, say experts.
Kotak Securities said leveraged companies could face more difficulties in a scenario when prices are expected to go down. However, listed players being large in terms of scale are expected to gain market share in the future.
Geojit Financial Services has a negative view on the sector.
"The real estate prices have a negative view, malls and large commercial spaces are likely to see fewer footfalls leading to falling in rental incomes of these players," it said.
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