COVID'19 Impact on India : A sector wise analysis

Indian economy faced the worst consequences of COVID'19. But, for some sectors it has been a bane and for some it has been a boon. Let's look at the five sectors which had the worst of COVID and five which had the best of it. Sectors that had the worst of COVID'19:

1) MSME Sector Today, almost all MSMEs are out of action due to the lockdown, hindering all the production activities at major corporations across the nation. There are various reports that indicate how MSMEs are reeling under the crisis and have no money to pay their employees. From leaders to experts, everyone has requested the government to increase the relief package for the MSME sector, which contributes to over 30 per cent of India’s GDP. It is worth mentioning that a majority of the small units may have to shut shop if they do not get a relief package soon. The government is planning to release a Rs 20,000 crore relief package, divided into two funds, for helping MSMEs. Describing the risks MSMEs face, the director of a firm that provides integrated services for MSMEs gave a brief statement about the current sector outlook and the challenges. Rajesh Gupta, Co-founder and Director, BUSY Infotech, said, “The world is going through something unprecedented. Nearly a third of the globe is in lockdown. Due to this lack of trade and shrinking sales, MSME's are feeling the burden of loans, repayments, GST filings, etc” “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 and measures.” Saying that MSMEs will enter “uncharted territory” after the lockdown ends, he urged the government to provide cash infusions that allow MSMEs to give workers jobs and buy raw materials. The situation can be thoroughly assessed with the help of the graph below.

2. Tourism and Hospitality Sector

MakeMyTrip co-founder and CEO Deep Karla in a group interaction said that the tourism sector was the first to get disrupted by the impact of Covid-19 and will be the last to see a resumption of activities.

Several reports indicate that the tourism sector will be the worst affected due to the pandemic. The government also knows how bad the sector has been hit and acknowledged the same through a press release. A KMPG report from last month had already predicted the Indian tourism and hospitality sector to lose more than over 3.8 crore jobs. That figure is bound to increase after the lockdown was extended to May 3.

An article in the Economic Times said India’s aviation sector may lose as much as Rs 5 lakh crore along with 4-5 crore job losses.

As the outlook of the industry is expected to stay under pressure for at least next few months owing to increased uncertainty, there are many calls for a minimum wage package for affected workers who have been rendered jobless since the lockdown.

3. Aviation Sector

The crucial aviation sector that connects nations across the world is witnessing a flurry of layoffs and pay cuts. Some workers have been asked to go on forced unpaid leaves by aviation companies, who have been hit equally hard as the tourism and hospitality sector.

Each day, there are reports of global airlines announcing furloughs or layoffs as operational strains deepen in the wake of the lockdown. CAPA India, a leading travel and tourism consultancy firm, said last in a report last month that global aviation activity has sunk over 66 per cent in the wake of the Covid-19 crisis.

“In India, the decline in aircraft movements has been even more dramatic. With the exception of a handful of cargo and repatriation charter flights, India’s skies are largely empty,” the April 2020 report said.

Since the report was prepared before the lockdown 2.0 was announced, the effects on the sector may have amplified.

It fears that the situation in the post-virus setup would remain pretty much the same for the aviation sector.

“From a point of complete suspension of travel, recovery is likely to be slow. Demand will be suppressed due to economic dislocation; slow or even negative GDP growth; broken supply chains; low consumer confidence; and concerns about lingering outbreaks of COVID-19, especially if travel insurance companies refuse to provide cover for associated medical expenses or travel disruption costs.”

The sector, like the travel and tourism segment, is also in urgent need of financial help to support employees.

4. Automobile Sector

The automobile sector in India has been forced to stop key manufacturing activity and has led to a sharp drop in production and sales. With most of the plants shut, big automobile manufacturing companies have announced pay cuts and are waiting for a decision on resumption of dealerships.

However, RC Bhargava, an industry veteran and Maruti Suzuki Chairman, explained how the automobile sector is interlinked with many other small sectors that manufacture key parts, which are then used for manufacturing vehicle components.

A higher P/E ratio shows that investors are willing to pay a higher share price today because of growth expectations in the future. The high multiple indicates that investors expect higher growth from the company compared to the overall market. This has happened after India has seen lockdowns, coronavirus related deaths and chaos all around. This rapid rise in the PE ratio is fueled by the innocent retail investors. These people are mostly new to the stock market and are known as Robinhood traders and investors. They are investing conveniently through their houses trying to navigate through the pandemic. These stocks are highly overvalued as the market has not adjusted to the price linked to the performance of the stock.

PE ratio = Share Price/ EPS

EPS of the Auto Industry has traditionally been low. Pandemic has further exxercabed the impact on the auto industry leading to closure of plants and almost no production for months which has impacted the EPS further. Retail Investors' entry into the market coupled with very low EPS has increased PE ratio of the Auto industry significantly in 2020.

5). Real Estate Sector

Finally, the real estate sector outlook has also suffered immensely due to the lockdown, which was announced to prevent the spread of the deadly Covid-19 virus.

ANAROCK Group in a report last month said housing sales will fall 25-35 per cent while office absorption will fall in the range of 13-30 per cent on a year-on-year basis.

In the long run, such a reduction in commercial and residential property could reset the future of real estate in India, the report added.

Besides, while construction activities have resumed in some areas, there are many hotspots in urban areas where key construction projects have been put on hold for several weeks due to the lockdown. This has led to unemployment among millions of migrant laborer's in India, who are engaged primarily in construction activities. Hardly anyone of these laborer's, who live on daily wage, have additional savings to see off the lockdown period. The government has urged employers to not cut wages or lay off such laborer's, reports suggest that companies are left with no choice but to let their workers go due to cash flow issues. The government has announced several relief measures for them, but it is hard to ensure whether the benefits are reaching all.

In such a scenario, the government could announce a job security scheme that covers certain employees, similar to what some countries including the UK have done. While there are the five sectors that need urgent help, the outlook of other sectors in India are also deteriorating. A larger job security scheme for those who have been laid off could be the only way to protect affected citizens.

Sectors that had the best of COVID'19:

1. Ed-tech

Since the onset of the pandemic and the subsequent lockdowns, the ed-tech industry has seen a considerable upsurge in users.

With schools and colleges shut, ed-tech has been the savior for teachers, students, and parents as well. Innovative and interactive teaching methods such as live classes, on-the-spot doubt clearance, and practice papers are offering a fulfilling learning experience for students.

Not just students, the demand for skill-based and knowledge-based online courses has also soared among salaried professionals. This rise in demand for both students and professionals is undoubtedly accelerating the growth of ed-tech.

India’s biggest edtech startups – BYJU’S, Unacademy, Upgrad, Vedantu, and the likes saw their numbers grow at a rapid pace.

Indian Ed-tech has raised $4 Billion in the last 5 Years out of which $2.2 Billion came in 2020 alone.

2. Online gaming

With people being forced to remain indoors and maintain social distancing from others, they need to keep themselves occupied. Online gaming has come to their rescue.

The pandemic has offered a boost to the gaming industry. With innumerable options to choose from and several new trends such as the rise of AR and VR, gaming is now all about the experience, and players in the industry are determined to offer a highly immersive and captivating experience. The online gaming industry is expected to grow at a compound annual growth rate (CAGR) of 40% to $2.8 billion by 2022, up from $1.1 billion in 2019, according to a Deloitte India report released on Tuesday. Largely driven by smartphones, affordable data and increasing disposable income, the rapid growth is expected to strengthen the sector’s share of the total media and entertainment industry by 4−5%. The time spent on gaming apps increased by 21% during the initial national lockdown, with the total customer base crossing 300 million users.

Valuation of Indian Online Gaming industry throughout the years

India is one of the top five mobile gaming markets in the world, with a 13% share of global game sessions, and is expected to add 40 million online gamers during 2020−22.

3. Agri-tech

Home to over 1.3 billion people, over 50% of India’s population is involved in the agricultural sector. One of the reasons agriculture is still taking precedence even during the global crisis is that food can never go out of business; it's a fundamental aspect of our survival! However, agriculture cannot power through the pandemic and the future on its own and needs cutting-edge technology.

The Covid-19 crisis has paved the way for large-scale digitization in this sector and agri-tech has steadily been gaining traction, as a result.

With traditional marketing channels disrupted, farmers are now accessing digital mandis to directly connect with wholesale buyers and sell their produce from the safety and comfort of their homes.

Even online grocers have turned to the digital mandis to get seamless access to fresh produce. Considering that the availability of food, or the lack thereof, will definitely impact mankind, agri-tech is one of the industries which will thrive.

4. Med-tech

As we see healthcare systems across the globe stretched worryingly thin, the role of med-tech in cushioning the impact cannot be stressed enough.

From infra-red thermometers to lifesaving ventilators, med-tech has aided the medicine industry at every step.

Other than that, the influx of cloud-based storage solutions has helped doctors, researchers and healthcare institutes to manage the overwhelming amount of paperwork and documentation in recent times.

Telemedicine is another area of med-tech that has emerged as a savior of patients, enabling them to consult with doctors virtually.

This has been particularly helpful for people from remote areas and tier-II and tier-III cities. Taking into account the mayhem induced by the pandemic, it is no surprise that the med-tech industry has observed a surge in business.

As can be seen from the graphs above there was slight dip in the Pharma Index and PE ratio when lockdown was announced due to COVID. But in no time index and PE regained its value with vaccines expectations and overall optimism in the Pharma sector. A higher P/E ratio shows that investors are willing to pay a higher share price today because of growth expectations in the future. The high multiple indicates that investors expect higher growth from the company compared to the overall market.

5. IT Sector The IT Sector has been growing constantly since the 2009 crash. As it is clearly visible from the Nifty IT Index that the IT sector did take a dip in Q3 2020 but it was followed by a huge boom afterwards.

The IT sector has been India's sunshine sector for quite some time now. The industry has contributed considerably to changing India's image from a slow developing economy to a global player in providing world class technology solutions. The National Association of Software & Services Companies (Nasscom) has projected a 2.3 per cent revenue growth in FY21 for the country’s information technology industry despite the pandemic. Nasscom has pegged the Indian IT industry’s revenue during the current financial year at $194 billion, up from $190 billion in FY20.

Although several players faced pricing pressure as the global economy contracted, the Indian IT services segment is set to grow 2.7 per cent to $99 billion, according to the latest numbers. Growth was driven by the e-commerce sector that grew 4.8 per cent to $57 billion, followed by a 4.1 per cent growth in the hardware segment that touched a revenue of $16 billion on a year-on-year basis. Exports are expected to touch $150 billion for FY21.

As it is clearly visible in the P/E ratio graph that investors felt the same about the IT sector, the P/E ratio never increased more than 30 but after the coronavirus it took off to 35 and it is a huge leap in a single year. As in 2020, it was standing at 15, This clearly states that the investors have high growth expectations from IT after COVID’19 because of increase in the demand of various IT services and products.

Conclusion: The impact of coronavirus pandemic on India has been largely disruptive in terms of economic activity as well as a loss of human lives. Almost all the sectors have been adversely affected as domestic demand and exports sharply plummeted with some notable exceptions where high growth was observed. In view of the scale of disruption caused by the pandemic, it is evident that the current downturn is fundamentally different from recessions. The sudden shrinkage in demand increased unemployment is going to alter the business landscape. Adopting new principles like ‘shift towards localization, cash conservation, supply chain resilience and innovation’ will help businesses in treading a new path in this uncertain environment.