I’ve taken 10 sectoral & industrial indices set by BSE, as the indicators of 10 key sectors of Indian business & economy. The movement of those indices over a period of about 6 months (Nov’19 to Apr,20) has been taken into account for the analysis. Then at least 5 major constituent companies (based on market cap & daily turnover on BSE) of each index have been considered to verify whether the movement of their share prices are more or less consistent with that of the corresponding index or not. If the scenario is inconsistent then there might be some unusual issues with the companies, as we have seen in the Healthcare Sector. Since November’19 to date, S&P BSE Sensex has slumped over 22% and since January’20 it has dropped nearly 25% owing to the COVID-19 crisis. Let’s move to the analysis part straightaway:
1. Basic Materials Sector:
The index corresponding to this sector is S & P BSE Basic Materials. According to the free-float method of calculation companies, a constituent of this index contributes about 4.5% to the total market cap of all companies listed on BSE. The index consists of heavy industrial companies such as steel producers (e.g. Tata Steel Limited, Jindal Steel and Power Ltd., etc.), cement producers (e.g. Ambuja Cements Ltd., ACC Ltd., etc.). This index slumped more than 26% since November’19 and nearly 28% since January,20, which says that year 2020 started with an uptrend in this sector. Each of the parenthesized companies has shown a similar downtrend over this period. There is nothing to be flabbergasted as the spread of Coronavirus and the deterrent measures have actually shunned the demand and supply of heavy industrials not only in India but across the entire globe. The construction and automobile industries, which use the products of this sector as raw materials are going through a worldwide “cease-fire”. So, the slump in share prices is justified.
2. Fast Moving Consumer Goods Sector:
The index corresponding to this sector is S & P BSE FMCG. If calculated in the free-float method it contributes more than 8% to the total market cap of BSE. The constituents of this index all the FMCG stocks such as HINDUNILVR, ITC, NESTLEIND, DABUR, etc. This index has slumped about 11% since Nov’19 and just about 5% since the beginning of 2020. The figures are much better compared to the benchmark index due to the uninterrupted demand for FMCG products even during this lockdown period. FMCG products are indispensable in daily life and hence have a demand inelastic to the changes in other economic factors. But due to the supply chain disruption share prices of FMCG companies will also fall sharply.
3. Financial Sector:
This sector is the spinal cord of the Indian economy and has a direct connection with all the other sectors of the economy. The index considered here is S & P BSE Finance. The index includes all the shares of Banks, Insurance Companies, Housing Finance Companies, and other NBFCs listed on BSE. The big fishes among them are SBIN, HDFC, HDFCBANK, AXISBANK, BAJFINANCE, SBILIFE, etc. It contributes over 22% to the BSE market cap, the most by any sectoral index. This index slumped about 31% over the period of the last 6 months and more than 35% since Jan’20. Whenever an economy enters a crisis this is the sector to respond first. Cashflow disruption in any sector directly hits the financial sector and it shows the cumulative impact of a crisis on all the other sectors of the economy. The Indian financial sector has been going through a lot of radical problems for the last couple of years. Those problems are nothing but the culmination of the flawed structure of the financial system. Too many banks and NBFCs have been under the unbearable pressure of bad loans and toxic assets. The only silver lining for this sector was the relief packages announced by the government. The money allocated to those packages being channelized across the country through private and public sector banks provided a certain amount of upward push to the liquidity of this sector. All the constituents of this sector have shown a similar slump in share prices.
4. Healthcare Sector:
Currently, this is the most attractive sector for any investor in the Indian stock market. This sector has performed exceptionally well during such a robust economic turmoil. The corresponding index S & P BSE Healthcare, which holds nearly 5% of the total market cap of BSE, has surged over 9% since Nov’19 and over 8% since Jan’20. Most of the major constituents of this index such as DR REDDY, SUN PHARMA, TORNTPHARM, CIPLA have shown a similar uptrend during the given period. It is because Pharmaceutical products come under the most essential category of goods, which have inelastic demand with respect to both price and income. If there is no unusual issue with the company, pharma stocks provide consistent & dependable returns even during the economic slowdown. Even this COVID-19 crisis didn’t reduce the demand for medicines & all, rather increased the same, as many people wanted to stockpile the necessary medicines before lockdown. Only AURO PHARMA has shown negative performance during this period as its business has been affected by some allegation brought by a US-based law firm.
But most of the Indian pharmaceutical companies buy some essential raw materials for production from China. But the supply chain disruption in China will negatively impact the production of healthcare products in India.
5. Information Technology Sector:
The index corresponding to this sector is S&P BSE IT. It contributes about 8% of the market cap of BSE. The index has slumped over 16% over the period of the last 6 months and more than 18% since the beginning of the year 2020. All the major stocks such as TCS, INFY, WIPRO, HCL TECH have given negative returns to their investors since the outbreak of the pandemic, showing consistency with the movement of the index. Considering India’s progress in the field of digitalization, this was a reliable sector for investors. Also, a huge number of jobs in India are generated by this IT sector. It is also a major source of foreign revenues as Indian IT companies sign a great number of foreign contracts every year. This year the IT sector has lost a significant number of foreign contracts due to the worldwide impact of COVID-19. This has led to a substantial drop in revenue of the IT companies.
6. Telecom Sector:
This sector has been going through the most severe doldrums during the last two quarters. The two biggest players listed on the BSE of this sector are BHARTIARTL and IDEA. Both the companies have been engaged in a robust conflict with the apex court of India regarding the calculation of AGR since Oct’19. IDEA had already been running in losses, both their revenue & EBITDA were continuously declining with a significant fall in the customer base. If the company doesn’t get an exemption from the Supreme Court, there are possibilities for the company to shut down its operations. But for Airtel the scenario is different. It is gaining customers with an uptrend in revenue. Its EBITDA to net debt ratio is also far better than IDEA. The government telecom companies BSNL and MTNL are also not in very sound condition. The index S & P BSE Telecom has mostly followed the uptrend of BHARTIARTL during the last 6 months, as this sector leader stock as far higher weightage in calculation of the index value than all the other existing telecom shares. Since Nov’19 BHARTIARTL has gained over 30% while the index has also surged about 17% over the same period. Though last month, the COVID-19 impact has led to a downtrend in the index due to the loss of subscribers but the current increase in the number of people working from home has increased the demand for WIFI and Cellular data. It will compensate to some extent for the loss of subscribers.
7. Automobile Sector:
In India, the demand for automobile products is highly income elastic and price elastic as well. The Indian economy has been going through a slowdown for the last year and the slowdown became more most dominant in the 3rd quarter of FY19-20, with all major economic indicators touching their historical low values. This economic crisis combined with a liquidity crunch in NBFCs increased third-party insurance charges & road taxes and a few other factors resulted in 2019 as one of the worst years for the automobile manufacturers with falling sales and piling up inventories. The BSE AUTO index has fallen over 32% since Nov’19 and by a similar amount since Jan’20. Shares of all the major automobile & their parts producers and in India such as Maruti Suzuki Ltd., Tata Motors Ltd., Apollo Tyres Ltd., Hero Motocorp Ltd., etc. have shown a similar trend during the given period of time. Post COVID-19 crisis the scenario has vitiated further as both demand and supply in the sector have declined abruptly due to the lockdown triggered by the pandemic. India is also a big importer of automobile components from China. The supply disruption in China can have a medium-term to even long-term impact on India’s auto sector.
8. Consumer Durables Sector:
Products under this sector don’t belong to the essential category and its demand shows elasticity with respect to economic factors. Nonetheless, stocks of this sector have given stable returns until the Corona Virus catastrophe broke out. S & P BSE Consumer Durables has fallen more than 21% during the last 6 months and about 15% during the last quarter. Prominent stocks such as CROMPTON, VOLTAS, TITAN, VIPOND have also shown similar trends. In the consumer durables sector, India imports 45-50 percent completely built units, mainly from China, apart from also importing the bulk of components. So, the post-COVID-19 shunned consumer confidence coupled with the supply disruption in China has led to a huge decline in the status-quo of consumer durables business in India. It will take at least a few quarters for resurrection.
9. Oil and Gas Sector:
The index S&P BSE Oil & Gas has fallen about 29% since Nov’19 and nearly 25% this year. Refinery stocks such as RELIANCE, ONGC, BPCL, IOC have also slumped by a similar amount. The oil price war between Saudi Arabia led the OPEC alliance and Russia has pushed the global oil price down to the lowest since 2002. This is beneficial for a crude oil importer like India since it will help to improve both the fiscal and current account deficit of the economy. Taking this factor into consideration India should import as much oil as possible and fill up its reservoirs exploiting this price war. But the consumers won’t be benefitted equally from this low oil price as the government will levy more duties on retail oil prices to increase its revenue. So, the demand remains more or less unchanged with changes in global crude oil prices. Currently during lockdown operations in factories are closed, motor vehicles are resting in garages i.e. there is nothing to generate the demand for oil. So, the stocks of this sector will be more decline in price.
10. Realty Sector:
The S&P BSE Realty index has declined about 31% in Nov’19 and about 38% since Jan’20. The major realty socks such as DLF, OBEROIRLTY, SOBHA have given positive returns to the investors throughout CY2019. But breakout of the Corona Virus has put a serious pause to the accelerating growth of the Indian realty sector. But this pause will not be long-lasting. Once this lockdown ends and everything gets back on track the real estate and construction business will also find its rhythm sharply.
The Indian economy was already going through a deep-rooted turmoil and the COVID-19 crisis has made the scenario exceedingly troublesome. I shared my views on the necessary monetary & fiscal measures to control the impact of this disaster on the economy. Once the way to contain the virus is found, everything will get back to its business quickly. But the Central Bank and the government must take some rambunctious steps to improve the fundamentals of the Indian economy so that it comes out of the existing morass.