The government’s around the world take several measures to mitigate the effects of Coronavirus pandemic. Industries globally face a downward shift in business and output. Here’s how Coronavirus is effecting the retail, IT, banking, real estate, and auto sector in India.
Disruptions in Retail Sector
Brokerage Emkay Global reported that the disruption seems wide and deep. Consumer demand, which was already decreasing due to the slowdown, has declined further. Shutting down of malls and shops has resulted in a considerable job loss amid the lockdown. The effect of this would remain in the sector beyond the lockdown. Further, it estimated a decline of 50% plus in sales of consumer products during the lockdown.
Coronavirus Effect on Auto Sector
India depends on China for 27% of its automotive parts. With the closure of manufacturing units due to the pandemic, there has been a significant delay in the production and delivery of vehicles. All OEMs saw a sharp drop in sales. While MSIL witnessed a 48% YoY decline, sales of Toyota/Hyundai declined 45%/41%, respectively. Besides, sales of MHCV has been impacted the worst. However, tractor sales outperformed with only 27% YoY decline as against greater than 40% decline across PVs/2Ws and MHCVs. Also, Fitch Solutions stated that vehicle production India will contract by 8.3 per cent in 2020 after a 13.2% decline in 2019.
Woes of the Real Estate Sector
The real estate sector will need a long time to recover as it was already under stress before the pandemic. The residential sector will witness a slump in demand post the lockdown period. Though the government has reduced lending rates by 75 bps points, banks and NBFCs will continue to remain cautious while lending to the real estate sector.
The risks of completion, construction timelines, supply chain disruption, zero absorption, and high cost of forex hedging will affect the decisions of lenders. Experts say that the three-month moratorium will solve the cash flow issue; however, it will not address the problem of liquidity. Hence, the developer will only be left with the option of raising domestic and international funds.
No New Deals
As real estate business requires visiting the site, no transaction is taking place due to lack of visit amid the lockdown. They also predict that lenders may increase the lending rates by 200 bps despite the RBI’s directives. Increase in interest rates will make projects unviable. The cost of debt above 18% will be unsuitable in a time when the revival of projects seems uncertain.
Real estate developers say that the new lending seems impossible now as the current situation is dismal. Tenants in malls are asking for reductions in rents and complete waivers. The position will worsen if the financial institutions will lend at more than 20%. Apart from financial issues, the developers may face a shortage of construction workers post the crisis. Besides, experts predict that net office space absorption across the top seven cities will decrease by 13% to 30% in 2020 as serial businesses will re-strategize their expansion plans to optimise their operational costs. Banking experts say that the government must provide measures like reducing the risk factor or refinancing the existing projects to provide relief.
IT Sector Cuts Deal Forecast
Technology research firm Information Services Group lowered its forecast for global deals as the pandemic hits the IT sector. The firm expects a contraction of 7% in global managed services that provide networking and hardworking support. Further, it expects 60% of clients to delay their tech spending for a minimum of three months due to the pandemic. Also, Bank of America Merrill Lynch stated that it is too early for the Indian IT sector to provide updates on client spends and the budget. Morgan Stanley reported that IT companies in India are struggling to adapt to work from home centres.
Coronavirus Effect on Banking Sector
DSP Investment Managers report stated that banks would witness a rise in bad loans. Experts predict more than 20% loss in earnings of bankers. With economic activities at a standstill, the households will face a cash crunch, and the banks would see a weak loan growth.
In all, the extent of the recession is profound, and the government will start gradual reopening of businesses to revive the economy.