Banking, retail, real estate, and auto are among the worst affected sectors due to coronavirus pandemic, a report said. With the majority of the population staying indoors due to the nationwide lockdown, the economic growth has taken a severe hit resulting in various sectors of the economy facing financial stress. While subdued loan growth has negatively impacted banking, supply side constraints have affected the sectors such as retail and real estate, the report by DSP Investment Managers also said.
Banking: Coronavirus would lead to weak loan growth and rising bad loans especially in the retail credit segment, DSP Investment Managers report said. "We have seen more than 20%+ earnings cut across financiers in FY21E. Large private banks and NBFCs are better placed to gain market share in the medium term however, with weak near term outlook valuations could see further correction / time correct," it added.
Retail: Social distancing is likely to significantly impact the retail sector business in the coming days, the report said. "Retail is typically a high operating leverage business as rent, employee cost and utility are largely fixed in nature and hence any loss of revenue has a large bearing on profitability. Within various retailers, apparel retailers are the most impacted followed by food retailers (restaurants) and grocery retailers are the least impacted," it also said.
Real estate: The residential sector is expected to take a long time to see recovery as it was already under stress before coronavirus arrived, the report said. "Retail demand also impacted due to the shutdown. Rentals will have to be foregone as clients would not be in a position to pay and enforcing Force Majeure clause may not be easy given long standing relationships. Commercial segment will see least impact in the short term. Deferment of sales could be prolonged due to negative wealth effect and possible reduction in income levels," it said.
Auto: Against the earlier expectation of gradual recovery in vehicle demand in FY21, the auto sector has been further hit. "Given the sharp deceleration in GDP growth over FY19-21, and the demand, supply-chain and economic impact of the lock downs, a revival now only seems likely in FY22 (an a very favorable base). Softer commodity prices will help cushion the impact of negative operating leverage, while all companies are guiding for a cut in their overall discretionary expenses and capital expenditures," DSP Investment Managers report further said.
The other sectors that will also see severe impact include IT, NBFCs, textiles, capital goods, cement, construction, hospitals, OMCs, gas, exploration & production and metals.