Sectors that will be the worst affected by Covid 2.0

May 28, 20213 min read

Riding the Wave

While the stock market’s passive reaction to the destructive Covid-19 waves has been puzzling, the Indian government has encouraged local governments to adopt more localized and targeted containment measures to avoid too big an economic impact. The Nomura India Business Resumption Index (NIBRI) fell to 60 for the week ended May 23, down from 63 a week earlier. The index, which tracks high-frequency economic indicators such as mobility, power demand and unemployment, is down to levels seen in June last year after a full recovery in February.

Covid and India’s Economic Growth

The Indian economy is unlikely to take a hit as bad as last year’s, especially when much of the country’s industrial activity has not shut down. In early April, when the surge in Covid cases was apparent, IMF had decided to revise India’s output growth forecast for next year upwards from 11.5% to 12.5%. However, Covid has also exposed some chinks in our economic armour. The government is expecting GST collections to fall below Rs 1 trillion in July.

Impact on the Stock Market

Participants and non-participants are equally baffled by the market's resilience to Covid 2.0. In the last one month, Nifty has gained about 6%. “While this second wave is expected to impact the country’s economic recovery in the short term, we expect the economy to bounce back as the government accelerates its vaccine rollout and lockdowns are getting lifted,” investment firm Franklin Templeton wrote recently.

How Covid Lockdowns may play out for Different Sectors

According to Naveen Kulkarni of Axis Securities, IT, pharma, metals, consumer staples and export-oriented plays are well-placed for now, as the global demand scenario has improved. He says that a 6-10 per cent cut in FY22 Nifty earnings could be on the cards with BFSI, auto and the small-ticket discretionary consumption bearing the brunt of the impact.

Impact on Real Estate

Indian house prices will stagnate this year, hurt by a devastating second wave of coronavirus which has crushed demand and offset government tax rebates and incentives for property developers, a Reuters poll showed. Average house prices are expected to stagnate this year.

Manufacturing at 7-month low

In March 2021 IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) slipped to a seven-month low of 55.4 from 57.5 in February 2021. Data for April indicates a slight improvement to 55.5 after declining to a seven-month low in March at 55.4. The surge in COVID-19 cases could dampen demand further when financials of companies are already susceptible to the hurdle of rising global prices.

Slowdown in Services

India’s services activity slowed down to a three-month low in April as businesses were forced to reduce operations. Data released by analytics firm IHS Markit showed that the Purchasing Managers’ Index (PMI) for the services sector declined to 54 in April from 54.6 in the preceding month. A figure above 50 indicates expansion, while sub-50 signals contraction.

Worries in the Insurance Sector

India’s health insurance sector could face billions of dollars in fresh Covid-19 claims over the coming months as the second wave of the virus takes caseloads to new daily records, particularly in Maharashtra. As per the data compiled by the General Insurance Council (GIC) and seen by ET, the insurance industry has registered 10.07 lakh (1 million) coronavirus claims worth Rs 14,738 crore (~$2 billion) until April 7, 2021. Of these, insurers have settled 8.6 lakh claims worth Rs 7,907 crore, as seen in GIC data.