Impact of Covid-19 second wave on the Economy and major sectors affected
The first wave of Covid-19 in the 2020 pandemic led to the nationwide lockdown which took jobs and livelihoods of many. India was among the emerging economies that saw the sharpest decline in the GDP growth rate.
According to a report by Pew research, people with income less than $2/ per day (₹150) increased marginally from Rs 6 crores to Rs 13.4 crores. The number of poor people in India increased by almost around 7.34 crores.
India’s vast middle class also suffered from this nationwide lockdown. People under the middle-income group also shrank from pre-pandemic levels of Rs 9.9 Cr to Rs 6 Cr.
During the peak of the first wave, India’s case tally did not cross the one lakh mark. On 16th September 2020’ India recorded 97,860 cases, the highest single-day rise of the first wave. Post topping this peak, India started its Unlock drive and the developments around the pandemic were rising. The cases started to decline and came down to 50,000 during mid-October.
Soon enough we saw the restrictions being eased in India, economic activities were being normalized, bars and restaurants all opened up. In the third quarter, High-frequency economic indicators were showing positive signs and almost 95% of the economic activities were back on the track.
The data was well proven and the people of the country were ready to enter a new calendar year with high hopes of vaccination. As the largest vaccination drive of the world was all set to start in the country.
But little did we know that to ramp up the recovery of the economy, and various associated activities will take us into the Second Wave of the Pandemic.
This led to the rise of the second wave in the country and states started imposing localized lockdowns and economic activities started halting, therefore affecting small businesses which were yet to recover from the initial impact of the pandemic.
As some states prepare up for lockdowns, these are the sectors an investor should avoid as the industries are affected negatively:
- AUTO SECTOR:
The state which contributes 14.3% to the nominal GDP of the country, Maharashtra has seen the largest spike of covid cases in the whole country. Lockdown in states like, Maharashtra can affect 12% of the country’s auto sector.
The good thing is labour management is under control this year and the government has told the companies to work with a workforce of 50% which will impact the production side of the sector.
Will the supply side of the Auto sector be affected? It will be too early to say yes, as the companies are working around the clock to ensure a stable supply of their products mainly auto parts, because after seeing a sharp rise in the demand during the second quarter of the FY 20-21, the manufacturers increased the production up by nearly 10-15% for the FY 21.
What we can be sure about is the distribution side, as the distributors of the state would be shut due to the sharp rise in the Covid-19 cases. Thus, leading to impact in the sales figures for the company.
2. BANKING / FINANCIAL INSTITUTIONS:
The banking sector of the country is more scared than any sector when it comes to situations like lockdown. Almost all the affected sectors are usually the customers of these banks and when their businesses are shut the situation gets tense for banks and other financial institutions.
The bank nifty has seen a sharp fall this month, on 12th April Bank Nifty was 5.10% down. Investors are scared as the lockdown hits again. HDFC bank shared a data where due to the surge in Covid-19 cases the dishonored cheques were highest in the month of April than March.
States with highest cheque bounces
- Madhya Pradesh
There is always hope for the banking sector as the government intervention always takes care of the banks, relief packages are provided to the banks as they are the backbone of the financial sector of the country.
The sector which requires most of the government’s attention is the retail sector, let us understand why and how?
3. RETAIL SECTOR
The sector which allocates 1 in every 12 employees of the country, the sector which contributes 5% to the total GDP serves the final demands of the customer and thus completes the supply chain.
It is served as both a provider to the households as well as an outlet that the manufacturers have to keep their products to focus on the visibility of the product. Now the employee consequences in the retail sector are also high as it is a labour intensive sector and any disruption in the process affects the livelihoods of many.
We have seen in the stimulus packages that the retail sector is always given a solution from the supply side, but as the basic economics and all the economists suggest we should focus more on the demand side when it comes to the retail sector.
Now, the supply side is when the producers and the manufacturers are given benefits from the government’s policies to increase the supply of any product which then helps in stimulating the economy.
Effects of Supply side policies
These benefits generally include tax cuts, easier loans, etc and the hope is that the producer, manufacturers or retailers use these benefits in increasing their production or hiring better employees and thus increase their sales.
Whereas on the other hand, the demand side includes government policies which help in creating up the demand and helping the economy to stimulate. Now demand side policies generally include direct cash benefits to the taxpayers, or creating jobs by spending more on the infrastructure.
Effects of Demand Side policies
So, according to the economists, the retail sector (the sector which does not include essential items) has been affected so much because the stimulus package provided gives more attention to the supply side of the industry and the demand still remains weak.
After being grounded for almost an year, the aviation industry was just about to pick up the pace, turn the corner and recover when the second wave blew their plans. Airlines were reporting 80% of their occupancy in January 2021, that too when the government had put a cap on the capacity.
Domestic demand was seen as a pent up demand and people were feeling that the flights were a safer mode of transportation than any other and also a limited number of trains were running.
If the virus is not contained early the business side of the aviation industry is going to get affected again and hoping a bad one this time because the labour was called back from their leaves, which will have to be put on hold.
It’ll be soon to say if the supply side would be affected or not, fleet expansion plans must be reset if the virus is not contained. The airports have been hit badly and have seen a drastic fall in the foot-fall in the month of April.
Effect on the GDP
So far we have seen that the recovery has been led by the pent-up demand of the goods and the hope was that the pent-up demand of the services will drive the economic recovery further. We assess that the effect of the second wave on GDP of the Jan-March quarter would not affect much as the rising cases were reported by the end of March.
However, “if we see the cases rising further and states start imposing stricter lockdowns and the moderation in the services is halted, then the sequential momentum in the April-June quarter would be zero or marginally negative as compared to previous forecast of 0.5%. “ – said the Nomura Economists.
After discussing the sectors affected from the second wave, we’ll discuss the sectors to invest in to save your portfolio getting affected and use these sectors as vaccines for your investments.