These sectors are likely to be hit the most by covid second wave-Business Journal

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Mumbai: As more and more states in the country impose localised lockdowns due to surging covid-19 cases, consumer-focussed sectors are likely to bear the burnt of the second wave the most.

Even as a ramp-up in vaccination programme amid the brutal second wave in India may see limited economic impact, analysts said lockdowns will slow down business activities and lower spending/income.

Sectors such as hotels, aviation, consumer retail, tour and travels, multiplexes and high beta sectors like autos, financials, select consumer discretionary are expected to be worst impacted, according to analysts. As consumers are unlikely to replace their one-year-old air-conditioner units and cookware again in 2021, several sectors that had benefited from pent-up demand last time won’t have the same demand support, analysts added.

Amit Shah, Head of India Equity Research, BNP Paribas said that lockdown impact will be similar like we saw last time in terms of consumer response, however the magnitude would be materially less severe. “The current lockdown is less harsh than what we had seen last year and also we are better equipped to deal with the spread of Covid from an economic standpoint. So select pockets of demand which are directly impacted like consumer retail, travel and tourism would take an immediate hit from a demand perspective,” Shah said.

Shah estimates that demand, especially for discretionary items, will once again take a back seat. From a market perspective high beta sectors like autos, financials select consumer discretionary plays will be impacted. As a result, sectors like IT and pharma which are viewed as defensives along with consumer staples will once again come in favour atleast from a near term perspective, he said.

Others concur. “Consumer demand will certainly get hit if more states enter lockdown for a longer period. Discretionary demand is expected to be worst impacted with possible hit in the income levels of consumers,” Binod Modi, Head – Strategy at Reliance Securities said.

Hotels, aviation, retail, tour & travels and multiplexes are expected to be worst impacted, according to Modi. Further, banking and non-banking and financial companies (NBFCs) can possibly feel the brunt of waning collection efficiencies once again as income level of MSME segment and public get hit. “Additionally, risk of exodus of migrant workers in a large scale can potentially hit construction activities once again, which may adversely impact number of ancillary industries,” Modi added.

“For many industries like travel, tourism, restaurants and hotels the impact will be significant. IT, pharma, metals, telecom and consumer staples will be less impacted and provide support. Discretionary consumption will be the most impacted sector and will see challenges,” Naveen Kulkarni, Chief Investment Officer, Axis Securities said.

According to analysts at Nomura, first order impact of the second wave will be on same set of economic agencies/sectors as those in first wave but the second order impact may be somewhat greater. “Recovery for these sectors will without a doubt get further postponed,” Nomura said.

Nomura believes that poor economic sentiment is mirrored in weaker loan growth, which is likely to remain tepid until the impact of covid-19 is fully minimized. Consumer loan growth has come off for quite a few countries, and India won’t be too different, in their view. “The deleveraging cycle is particularly protracted in India and a fallout of the long and deeper asset quality cycle,” it said.

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