Impact of Covid’19 on the stock prices of each sector

The present Covid'19 pandemic continues to have an adverse impact on the Indian economy, and looks like we are headed into an elongated U-shaped recovery instead of the predicted V-shaped recovery

However, not all sectors of the economy have been equally impacted by this crisis. In this post, we try to understand the effect of covid on the stock prices of various sectors of industry, which could act as a proxy for the extent of impact of covid on these sectors

The below image shows the stock price of NIFTY and BSE indices of major sectors as a % of their price on January, before the covid crisis began :

Telecom & Pharma are the clear winners with minimal impact on stock prices post lockdown ,which is expected, since they come under the category of essentials and have witnessed limited disruption during lockdown

FMCG has almost reached pre-covid levels with robust consumption growth in rural areas with migrant workers returning home & increasing farm incomes along with supply chain disruptions slowly being eased post lockdown. Most FMCGs are now finding ways to increase their online presence taking the direct-to-home route with consumers preferring the convenience and safety of home during these tough times

Consumer durables seemed to have to reached the levels of 80%, which could have been mainly driven due to the pent up demand post lockdown, especially in categories such as laptops & cooling products as people spent more time indoors and worked from home

IT services have also almost reached 90% of pre-covid levels, close next to FMCG, mostly driven by businesses opening up in the US & Europe. However what remains to be seen is if it sustains these levels in the midst of record rising cases in the US with clients expected to reduce their IT budgets and slow down new initiatives due to fear of uncertain economic situation and recession

Oil & Gas also seems to have reached 90% of pre-covid levels with Unlock 1.0 removing restriction on movement of vehicles coupled with low import prices of crude oil improving margins for oil refineries. However, demand for fuel still seems to be low with restricted public travel across the country and limited flights in operation

Auto sector seems to be a mixed bag with increasing 2-wheelers and tractor sales in rural areas driving up the overall index price, while 4-wheelers and commercial vehicles dragging down the prices. Let’s look at stock prices of some of the auto stocks which makes this distinction clear:

1. Maruti Suzuki : Market leader in 4 wheeler segment

2. Hero Motorcorp : Market leader in 2 wheeler segment

3. Mahindra & Mahindra : Highest market share in tractors

4. Ashok Leyland : Second largest market share in Commercial Vehicles

Clearly, 2 wheeler & tractor stocks are much better off as compared to 4 wheeler and commercial vehicle stocks, as seen from the above examples

Banking & financial services sector is one of the worst affected stock index with increasing worry of NPAs ( bad loans ), however financial services, especially NBCFs are at a higher risk than banks as the risk of default is higher due to the nature of clients they lend to. They also are battling the liquidity issues to keep the cash flows running, with banks not willing to lend to them and also clients postponing interest payments by availing moratorium announced by RBI

Aviation & Realty seem to be the worst affected with travel restrictions and limited operating flights post lockdown and real estate prices crashing as consumers look to postpone new house/land purchases for some time, at least till the economic situation improves

Given below are the stock prices of some of the major players in each sectors and their stock prices as a % of pre-covid levels ( Jun last week vs Jan last week )

• Agro Chemicals & Fertilizers have bounced back to pre-covid levels with increased agriculture activity and expectation of a normal monsoon season in coming months

• Diversified & Speciality Chemicals have also reached pre-covid levels with limited disruption due to lockdown given the essential nature of this sector

• Hotels & Restaurants stock prices are still very far away from pre-covid levels with low occupancy rates & consumers restricted to homes eating healthy and avoiding outside food

Hope you have now understood on a high level, the impact of covid on the stock prices of each sector. This is also a good time to hunt for stocks backed by strong fundamentals, which are undervalued, if you are looking to invest long term

Meanwhile, with increasing record number of cases each day, will these stocks hold onto their current prices and improve hereafter or fall prey to another bear run in the upcoming weeks, is a question on everyone's mind which we will try to answer in the subsequent posts

In the next series of posts, we will look at the impact on each sector in much more detail and the outlook for the coming months under different scenarios