As the coronavirus infection is spreading and risking the lives of people globally, it has also created deep economic distress. Some businesses struggle to stay afloat, most online companies will see the revenue and profits getting impacted amid the COVID-19 pandemic. But the impact will be different across sectors as the country eases lockdown in some parts. Even with a sufficient stimulus package if only partial uplifting of the lockdown is done in mid-May, it will put at least 32 million jobs at risk in India as per a report by McKinsey & Co. It says the cost of stabilizing and protecting household companies and lenders could exceed 130 billion dollars.
In the case of the second wave or more lockdowns, the impact will be even deeper, in terms of sectors the aviation sector is the hardest hit while Pharmaceuticals and IT companies are in a better position. But this aviation slump has a direct impact on Indian IT companies and could mean a 1 to 7 % drop in revenues in the coming quarters as per experts.
The hotel industry has also seen a major disruption after the aviation sector. Hotel industry revenue is likely to fall by Rs. 90,000 crore in 2020 due to COVID-19 impact. Automotive and advanced industries will be next in line with no near-term relief to the sector. The first time ever India set to report zero automotive sales in April and the sector is unlikely to have a respite anytime soon. It is important to note that the quarter 1 consumption could drop by more than 30% in discretionary categories like textile and furnishings.
Construction, real estate, and textile industry are majorly hit if we compare it to the same quarter of the previous year. The food and utility sector is estimated to not see a thorn in consumption by more than 10% if the current scenario plays out. So largely strained debt to service ratio is anticipated in the travel and transport industry which includes a logistic, along with the hotel and entertainment industries like movie theatres.
The falling crude oil prices in the past week also hints at weakened demand in the energy segments. Global energy demand could slum by 6% in 2020 due to the lockdown restrictions in what would be the largest contraction on record as for the International Energy Agency. As Indian consumers are expected to spend cautiously this year consumer and retail segment is also anticipated to be soft.
Less chemical and agricultural sectors can also see a drop in the quarterly output, but pharmaceuticals IT and telecommunications are relatively strong sectors. As the lockdown has shown up some unprecedented challenges the pharmacy sector is better placed to navigate the coronavirus outbreak as per brokerages.
The report also estimates that almost 25% of MSME (Micro, Small, and Medium Enterprises) and small and medium-sized enterprise (SME) loans can turn bad. The corporate sector might see a 6% default rate with sectors like aviation, textiles, power, and construction showing a higher rate with around 3% default in the retail segment. With layoffs and pay cuts seen in the aviation and other segments following will be the causes of concerns after the pandemic is over unemployment, liquidity risk, and business risk. Additionally to the announced stimulus packages McKinsey suggests a large stabilization package to contain the problem of a magnitude like this