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COVID-19 impact | 5 sectors that are worst hit, and the road ahead for them

Aviation, retail, financials, realty and automobiles are the five sectors that are at the front among the sectors that are smarting under severe pain now

April 28, 2020 / 01:09 PM IST

The damage caused by COVID-19 is not confined to only select pockets of businesses but it is a widespread malady that is expected to keep the economy sick for a longer time.

While the magnitude of the impact may vary from sector to sector, there are some sectors that have suffered the most and continue to suffer.

Market experts are of the view that aviation, retail, financials, realty and automobiles are the five sectors that are at the front among the sectors that are smarting under severe pain now.


Aviation is the worst-hit sector, with both international and domestic flights cancelled on account of lockdown.

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Directorate General of Civil Aviation (DGCA) has issued circular that no decision has yet been taken on the resumption of operations after May 4 and also asked the aviation companies to refrain from making any fresh-booking.

Industry experts highlight that the aviation sector globally incurs higher fixed costs and operates at very thin margins due to high competition from low-cost carriers (LCC).

The road ahead

In the case of the lockdown is extended, the sector will have a serious liquidity crisis which will raise questions on their survival. Even after normalcy returns, it is expected that the sector will have a longer period of

slowdown due to travel restrictions and perhaps a behavioural change in public spending.

"If the lockdown extends, the domestic aviation players are likely to see severe liquidity issues and consolidation in the sector. Even if the operations resume, we expect that the outlook for the aviation industry has degraded given travel restrictions and change in public preference which may stay for one to two years," said Vinod Nair, Head of Research at Geojit Financial Services.

"Currently it is very difficult to estimates the likely impact on the financials of the companies. We believe that Indigo is better placed given its market leadership position and less leveraged," Nair added.

Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities is of the view that the aviation industry is expected to see sharply lower revenues during Q4FY20 and Q1FY21.

The recent sharp decline in crude prices is positive for the aviation sector. However, the benefit of lower aviation fuel can come only when airlines operate at optimum utilization. Companies’ ability to manage fixed costs will be the key to survive this event. Even after lifting of lockdown travel activity be very slow as people would still avoid travelling for some time," Oza said.


Organized retailers are heavily impacted by the shutdown of malls and shops while the influence on essential goods retailers is minimum.

Nair of Geojit Financial Services believes this huge impact is likely to stay until the economy is opened phase-wise, having a maximum benefit to online retailers.

The road ahead

"While the overall outlook is likely to improve steadily post-recession, as employment and personal income in the economy reverse. The preferences of customers are likely to be cloudy in the medium-term and cut discretionary spending leading to falling in footfall, online seller way be able to handle this situation," said Nair.

Nair expects significant improvement in business in the second half of FY21 supported by government spending, liquidity from RBI, good monsoon and provided we have a successful lockdown and confidence of a remedy in the future.

Oza of at Kotak Securities expects Q4FY20 and FY21 financial performance of most of the retailers to take a hit.

"While the situation remains evolving, we expect revenue to decline in Q1FY21 for apparel retailer, with gradual recovery from Q2FY21 onwards. We believe that substantial loss of revenue during the shutdown is likely to result in negative operating leverage which will impact profitability," said Oza.

The disruption caused in Q1FY21 operations is expected to drag FY21E earnings estimates significantly.

While the demand for food and retail grocery could come back to normalcy as and when the complete lockdown is lifted, the demand for discretionary items will take time to revive and to that extent, other retailers might see the impact for a longer period, Oza highlighted.


With the COVID-19 pandemic leading to lower GDP growth for FY2021, the risk of a precipitous fall in loan growth is getting stronger.

Besides, there is a fear that the banks and NBFCs may see a rise in NPAs as COVID-19 has hit businesses strongly as several small and medium-scale industries are on the cusp of collapsing.

"Loan growth demand is likely to be led by negative outcomes such as worsening working capital cycles, moratoriums or restructuring or slower pre-payments," said Oza of Kotak Securities.

The road ahead

"In the near-to-medium term with growth likely taking a back seat, we expect NBFCs and HFCs to yet again focus on liquidity and risk management as key priorities. Post the lockdown, growth recovery would be

divergent across business segments," said Motilal Oswal Financial Services.

Motilal said funding cost is likely to remain high due to risk aversion from the banking system and tight capital markets. With some normalcy returning, the brokerage expects securitisation or assignment transactions to likely pick up first from a funding perspective.

As per Nair of Geojit Financial, banks' total credit is expected to grow lower to 6 percent compared to the previous 9 percent in FY21.

"Assuming that the lockdown effect is likely to reverse post Q1FY21, the asset quality though weaken will be at manageable levels given the benefit of moratorium, liquidity and cut in interest rate. Healthy banks with the strong capital base will be able to bear the higher interest cost and provisions, but net interest margins will be hit," Nair said.

"NBFC’s and HFC’s could see liquidity concerns given the moratorium and will largely depend on the effectiveness of LTRO and further funding from banks. The business could be back to normal in H2FY21 provided no further restrictions to lockdown and after effect to the economy. The majority of the concerns are factored in the valuations even though the valuations may correct in the short-term," he added.


New constructions are stopped and sales have taken a hit. The sales are expected to take further hit in the near-term.

Experts say the extent of the impact is difficult to assess completely. The sector may face the risk of delay in new launches, the slowdown in sales, etc.

The road ahead

The recovery path for the real estate sector could be slow and painful, say experts.

Kotak Securities said leveraged companies could face more difficulties in a scenario when prices are expected to go down. However, listed players being large in terms of scale are expected to gain market share in the future.

Geojit Financial Services has a negative view on the sector.

"The real estate prices have a negative view, malls and large commercial spaces are likely to see fewer footfalls leading to falling in rental incomes of these players," it said.


For a sector, which had been trying to overcome myriad challenges already, the outbreak of COVID-19 is no less than a curse.

In FY20, automobile volumes declined on account of weak economic scenario, price increase due to BSVI transition, inventory correction by OEM’s and Covid-19 impact in March 2020.

The road ahead

Kotak Securities expects the near term to be challenging for the auto sector due to lack of near term demand catalyst in view of economic impact from COVID-19.

"We expect the auto sector to gradually recover from the second half of FY21, supported by rural demand and expected improvement in the economic scenario. Financial performance of auto stocks in the near-term is expected to get impacted on account of lockdown and COVID-19," Oza of Kotak Securities said.

Geojit Financial expects a partial revival in the car segment post lockdown which was postponed by consumers in anticipation of new emission standards from April 1, 2020, provided the salaried class or urban demand is less impacted. The introduction of scrappage policy could be a bonus for the commercial vehicle sector.

"Calibrated move by the government and the RBI to revive rural demand & liquidity could open up opportunity post H1FY20. At this juncture, we are recommending stock with a strong balance sheet, lower debt and rich in cash flow which can tolerate the period and reemerge as winners. It can be considered as a contrary call that, the further downside can be used as an opportunity to accumulate for long-term gains," Nair of Geojit said.

Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Apr 28, 2020 01:09 pm