Coronavirus impact on various sectors and Indian economic growth 

 

Coronavirus has made a very deep impact on various industries and sectors. It will take years to overcome its negative impact and should be followed by a number of government stimulus packages. 

Several renowned international agencies, including the World Bank and the International Monetary Fund, have accessed the situation and cut their India GDP for 2020-21. The revised Indian economic growth rate forecast for 2020-21after the country halted due to the 40 days coronavirus lockdown.

As per the World Bank report, India is expected to grow at 1.5-2.8% in 2020, whereas the International Monetary Fund has predicted a 1.9% expansion for the same period. The global economy is also in the deep recession since the Great Depression in 1930, as per the IMF report.

We have studied almost all major sectors and analyzed how coronavirus will impact on various sectors or industries and Indian economic growth. The details of our analysis are given below on the sector-wise report.

 

Below  sectors will be negative for the near to mid-term basis and will impact adversely in the Indian economic growth

 

 APPAREL & TEXTILE SECTOR –  DOWN

India’s textile exports are going to hurt for the next few quarters due to the coronavirus outbreak. The import price of man-made fiber is going to hike significantly due to lockdown in China, as a result, we may see some higher prices in the domestic market.

Textile exports have also been impacted due to the spread of coronavirus in the main exporting countries in Europe and the US. Due to the spread of coronavirus, many importers or foreign buyers have put their purchases on hold.

If the same thing continues for another quarter exporters may have to cut their production which will impact job loss in the sector. The textile and apparel sector production is expected to decline by 12-15% in the Apr-June quarter. This will directly impact the Indian economy growth rate for the current fiscal, hence the sector is down due to coronavirus impact.

AUTO SECTORS- DOWN

Tight cash flow in the recent past already put a dent in the sales of the Auto sector and it is expected to further widen in the coming months due to the coronavirus outbreak. Auto original equipment manufacturers (OEMs) will need to postpone any new launches by at least a few quarters or till sentiments improve.

Only essential repair related aftermarket services may continue but under low demand. The shutdown in China has prohibited the import of various auto components that are now affecting both Indian auto manufacturers and the auto component industry. In case the current situation in China does not improve, it is expected to result in around 10% contraction in Indian auto manufacturing in 2020. It would be a huge loss for the sectors as well as the Indian economic growth rate.

 

 AVIATION & TOURISM SECTOR- DOWN

Tourism and Aviation sector has witnessed a complete halt in the operations and is the first sector to hit due to the coronavirus outbreak. The domestic carriers had canceled and suspended flight operations from India to China and Hong Kong and resulted in a loss in revenue. 

The World Travel and Tourism Council (WTTC) estimates the crisis to cost the tourism sector at least USD22 billion, the travel sector shrinking by up to 25% in 2020, resulting in a huge job loss.

On account of the coronavirus outbreak, the Indian tourism and hospitality industry is staring at a potential job loss of around 38 million.

In case the situation prolongs, we may witness a complete halt in the sector’s operations and it may take initial government support for the revival of the sector and this may impact a huge loss on Indian economic growth.

 

REAL ESTATE SECTOR- DOWN

We may see muted demand in real estate in the coming months. There may be a halt in new projects due to lower demand in housing sectors. The demand in commercial properties may get curtailed or postponed due to slow down in the US and European economies. The construction houses may face some difficulties in migrant labor and liquidity pressure.

It would take 2-3 quarters for any new launch after the situation gets normal. The slowdown in the real estate sector would impact loss for the Indian economic growth 

 

POWER SECTOR- DOWN

Indian Industrial and commercial activities contribute 50 percent demand. The extended lockdown in India has impacted the power sector in a big way. Being an essential service, power generation is less likely to be impacted and post lockdown demand is going to be increased.

Again there are coal mining disruptions due to coronavirus and these may lead to coal shortage in some plants and also affecting regional power availability. Similarly, solar projects are also getting supply chain disruption. There may be collection delay and default from the consumers due to the coronavirus and lockdown in the power sector. This could be a challenging one. Overall the Power Sector would face a challenge in all aspects both in the near term as well as after the coronavirus.

 

CHEMICAL SECTOR- DOWN

Petrochemical prices were already under pressure, this is due to the concern of global overcapacity and slowdown in demand. The coronavirus outbreak has further aggravated the sector. Uncertain demand outlook and weak prices are expected to lead to weak market sentiments and delay investments in the sector.

The local dyestuff units are mostly dependent on imports of several raw materials including chemicals from China. Coronavirus outbreak has delayed/canceled the shipments from China and this result spike in raw material prices which is affecting the industry.

China is a major supplier of specialty chemicals for textiles, and this has affected the business in India. Nearly 20% of the production has been impacted due to the disruption in raw material supply from China. This results in the loss of Indian economic growth.

 

BANKING, FINANCE & INSURANCE- DOWN

 The retail financing of banks will be impacted largely due to the economic slowdown. The demand for housing loans, consumer loans, and working capital financing will get hit due to the lockdown and slowdown of the economy.

Bank’s profitability will be under pressure as retail finance is the key driver. It will be hit along with other products like

-depressed NIMs in a low-interest regime.

-There will be a fall in banking income due to lower cross border transactions during the lockdown period.

– drop-in fee income on the distribution of wealth products due to volatility in the capital market

On the other hand, savings may increase in the near-term which can help cushion the liquidity demand for banks. The coronavirus pandemic can prove positive for insurance companies and banks having scale and strong balance sheets.

There is also a risk of getting corporates as defaulters and insolvencies unless the current regulatory framework is tweaked urgently and addresses the current situation. In such cases, the banks and NBFCs having stressed assets and weak balance sheets can come under pressure. 

 

METAL AND MINING SECTOR- DOWN

In Indian, 75% of steel is consumed as raw material for Infrastructure, construction, and automobile sectors. Due to the slowdown in the Indian economy, these sectors are already affected by the demand for steel ahead of the coronavirus. Post coronavirus many industries, particularly in Maharashtra, are in lockdown, and production is completely stopped.

Similarly, the demand for Aluminium, copper, Iron ore, etc also got affected as these metals are used in construction, transport, and electrical sectors. And due to shut down these industries are affected.  Demand slowdown due to the coronavirus situation will further affect prices and therefore, the profitability of companies.

ELECTRONICS & CONSUMER DURABLE SECTOR- DOWN

China supplies all major raw material and finished products in the electronics industry. Indian’s electronic industry has got supply disruption, production reduction, impact on product prices due to heavy dependence on various electronics component supply directly and indirectly, and local manufacturing.

The spread of coronavirus has dented the sales of top electronic companies and smartphone makers in India. The ban on non-essential items during the lockdown period in India has also affected the sales of this sector in a big way.

 

IT & SOFTWARE SERVICE SECTOR- DOWN

The Indian IT services are expected to see a lower in their growth of about 3-5% in the current financial year according to the rating agency ICRA. This is due to the coronavirus pandemic and global slowdown 

The IT companies are heavily dependent on manpower and are not able to operate due to restrictions in the movement of people arising from lockdown and quarantine issues. The existing projects of IT companies are not getting completed on time and the new projects are declining. It may take a quarter to solve this issue in IT companies post lockdown and after everything gets stable.

 

OIL & GAS SECTOR- DOWN

Recently we have seen a freefall in crude oil prices. This is mainly due to a lack of crude oil demand across the world. The OPEC and allied countries are not agreed to cut the production of crude is another reason for falling demand. Indian is the second-largest country after China to import crude. 

In Indian, the biggest demand for Oil and gas comes from retail direct customer end, and it accounts for around ⅔ of the total demand of Oil & Gas followed by Aviation fuel, LPG, and NG.

The Aviation industry has been impacted by international and domestic lockdown. The demand for LGP, LPG, and NG impacted due to the slow pace of the supply chain. The demand for Oil & Gas will take at least two to three quarter to become stable and will definitely impact the Indian economy

 

RETAIL & E-COMMERCE SECTOR- DOWN

The retail and e-commerce sector is facing challenges due to the coronavirus outbreak. The sector may see a dip in its growth. The sector is under the pressure of delivering the products to the end customers. It is also facing a big challenge to engage its manpower in the current situation and equip them with appropriate resources to manage operations remotely with little or no disruption.

The unavailability of products during the lockdown period when there is a surge in demand for home delivery of goods under present circumstances is the biggest challenge for the sector. We find this sector will be down till the lockdown gets lifted and everything gets stable.

Below sectors are positive in the near and long term basis and will impact positively to the Indian economic growth.

 

AGRI SECTOR- UP

Agriculture is an essential category and would impact negligibly due to the coronavirus outbreak. Migratory labor movement for harvesting wheat, paddy, pulses, etc are allowed for the ongoing Rabi season.

The prolonged lockdown will result in an increase in demand for food supplies. Several state governments have already allowed free movement of vegetables, fruits, milk, and other essential items. Whereas the online food grocery platforms are heavily impacted due to police restriction and stoppage of vehicles.  State governments are also working out policies for food movement which are likely to ease the situation

On the other hand, the poultry sector has been affected severely due to the coronavirus outbreak. The misinformation spread by social media by correlating coronavirus infection with the consumption of meat and poultry products. This has caused a poor demand for meat fish and other poultry products and the prices 

The export-related agricultural products or its allied products got impacted in the current situation. Overall, agricultural production being an essential category has not impacted much due to the coronavirus outbreak. It will definitely contribute to the Indian economic growth in the current financial year. 

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PHARMA  SECTOR- UP

India is the leading exporter of generic drugs across the world. It depends on China for more than ⅔ of its bulk drug needs. As there is supply disruption in the last 2 months Indian is managing through its available stock. There are many challenges for the sector other than the raw material like labor, packaging materials, production. Due to these, the production delay is there in the Pharma sector.

There is a high export demand for certain products over the short term. India has banned the export of essential medicines to ensure the availability for domestic use. Most large global Pharmaceutical manufacturing is monitoring their supply chains and strict to their commitment to continued supply with minimal disruptions. Though in the short term the online delivery of medicine has been affected but will get over soon. This is the sector where there is demand but there is supply disruption which is temporary. 

TELECOM SECTOR- UP

The Telecom sector has become the most essential sector during the time of global coronavirus Pandemic. This is helping all people to work efficiently sitting at home. It is helping private all well as government business to run smoothly in the lockdown situation.

Telecom companies’ network usage is skyrocketing nowadays. There has been a large spike in demand for internet packages, voice, and video calls due to lockdown. The demand for bandwidth is expected to grow up further. Collaboration technologies along with telecom technologies will have an opportunity to come up up with new products and offerings. This is the sector where demand and supply both are growing northwards. Hence the sector will impact positively Indian economic growth.

FMCG SECTOR- UP

While in lockdown the supply of essential services is not disrupted, rather consumer overstock on essential products and commodities. The existing uncertainty around how the coronavirus pandemic would shape up results in an uptick in spending by consumers in rice flour and other essential items.

This has actually spiked the sales for FMCG companies. Whereas the obstruction in supply chain and logistics is leading to drying up of inventory stock levels at retailers stores. This may significantly impact the supply of products to consumers.

We may see a significant improvement in FMCG sales once there is relaxation in lockdown or logistics to become operational. This sector can contribute to decent growth in the Indian economy

 

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