All you need to know about winners and losers in a post-lockdown stock market

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S Ranganathan

COVID-19 pandemic and the subsequent economic lockdown has shaken up, among other things, many a rule of the stock market investment. The unforeseen episode has amplified the hitherto overlooked risk factors for investors as they scramble to retool their strategies to deal with investment dangers lurking ahead.

Active Policies

There are no two opinions that right-minded policy actions can, to a great extent, mitigate/offset the second-order impact - economic cost – of the COVID-19 pandemic and the subsequent 'Great Lockdown'.

On its part, the Reserve Bank of India (RBI) is doing 'whatever it may take' to keep the systemic liquidity in the comfort zone while supporting growth.

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S Ranganathan

Head of Research|LKP Securities

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All eyes are now on the Finance Ministry which is expected to come out with a constructive stimulus package any time soon to revive effective demand to set the wheels turning for the economy.

Interestingly, the virus has done what was once unthinkable by putting everybody on the same page when it comes to rolling out active and unconventional policies to kick-start economic growth.

Therefore, it is only natural to expect that the Government and the RBI will play active roles in supporting growth through necessary fiscal and monetary measures going forward.

This, in turn, would shape/shift investors’ behaviour towards several sectors shaping new investment themes. Here is our forecast on emerging investment themes and sector rotation based on a deep dive into the investors’ behaviour.

No labour pain for agriculture

Contrary to the popular notion, we see the large scale reverse migration of labourers to rural areas following the pandemic playing out as a blessing in disguise for the agriculture and allied sectors.

This (the reverse migration) is expected to have a positive impact on the upcoming Kharif crop as it will lead to an enhanced supply of labour without depressing wages and elevated rural demand for food and consumer durables without building any price pressures in the economy.

Besides, the steps taken by the Government aimed at removing supply bottlenecks to reduce rural stress will play out as a bonus as and when they take shape.

Health(care) in pink

It is our view that healthcare vertical and health insurance space will benefit most from the pandemic outbreak as individuals with adequate disposable income and Government – both states and the Central - spending more on healthcare.

This will have a positive impact on firms operating in the healthcare space and help revive investor sentiment towards pharmaceuticals, hospitals, and diagnostic chains. Health insurance players will also get a new growth cover as individuals gradually shift health insurance to essential spending from discretionary expenses.

A new formula for drugs, chemicals

COVID-19 has opened up a new dimension for India as several developed nations look towards the country as an alternative sourcing destination to China for chemicals and Active Pharmaceutical Ingredients (APIs).

This is changing investor preferences towards sectors like speciality chemicals and pharmaceuticals since these sectors stand to gain the most from the shake-up in the sourcing strategy of global corporations.

Advantage large private lenders

Large and well-capitalised private sector banks with adequate liquidity coverage ratio and growing incremental deposits along with a robust liability franchise will gain significant market share going forward attracting investor participation in the process.

E-tailers to gain

Online retailers for daily essentials will see a positive impact on their revenue growth presently while general e-commerce players may stand to gain at a later stage altering investor behaviour towards listed entities in this space despite premium valuations they command.

Bells ring louder for telecom

In our view, consumer acceptance of digitisation marks a permanent shift towards higher dependence on wireless telecom players who are virtually operating in a duopolistic market scenario.

Business with a heart to win investors' mind space

The philanthropic largesse displayed by several corporate groups during the pandemic in our view will stoke consumer interest in such businesses. Consumers are expected to lap up the products/services of these good corporate citizens leading to above-average volume growth, perking up investors' interests in these companies.

Check-out from hospitality space

The viral infection in all likelihood is going to stay with the hospitality and leisure travel segment for a longer time.

Therefore, they are bound to get adversely impacted even in the medium term, though business travel may stage a comeback despite the proliferation of digital modes of interactions such as webinars and video conferencing.

Junk fast food

The prolonged lockdown and the work from home (WFH) culture is likely to see quick-service restaurants going out of investors’ menu quickly.

The adverse impact on this sector is already evident from the shifting consumer preferences towards home-cooked food, sending the incremental demand for fast food from the Double Income, No Kids (Dink) group) southwards.
Real Estate to face multiple headwinds

In our reading, commercial real estate prices are likely to head south as the blended model of work is becoming the new normal as people start working from home (WFH) leading to re-negotiation of rentals.

Moreover, the lockdown impact will also manifest itself in changed investor behaviour towards fresh home purchases hitting the residential segment for some time.

Demand cooldown for cooling appliances makers

The COVID-19 and lockdown is expected to adversely affect the peak season (April- May) sales for cooling appliances makers. Our channel checks and corporate interactions point towards a rather muted demand scenario for the manufacturers of cooling products.

In sum, our research shows that the second-order impact of COVID-19 on investor behaviour will see new leaders/sectors and investment themes playing out in the market for the remaining months of 2020.

Factoring in these behavioural shifts in the stock play can make an investor win at all costs in good times and bad.

(The author is Head of Research at LKP Securities)

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