As the stress induced by Covid-19 grips the minds of consumers and investor alike, it has inevitably managed to change consumer behaviour and social norms. Stock markets are now taking a safer approach and are shifting towards segments that are most likely to be the least impacted.
One such sector which is expected to lose the most out of the bunch is finance. Business for this financial sector is quite uncertain. The various lockdowns that are being implemented will affect its customer profile. As people get more and more concerned so will their likelihood of making investments diminish.
It seems that the level of performance in financials could narrow down considerably and be concentrated around the top two or three names. In fact, the changing consumer preferences will be one of the key factors to the revival of sectors relatively quicker. Retailing, travel and tourism are expected to take much longer to recover, as consumers are more likely to avoid such expenses. Sectors involving discretionary spending such as multiplexes, theme parks, automobiles, malls, real estate, hotels and aviation may take much longer to recover as these are not high priority expenditures at the moment.
There are some major changes happening in how the economy works because of this pandemic. So, some sectors will be less affected, and some may see a much faster recovery than the GDP growth. Others may get hit because many of the underlying businesses are hit, which implies that their recovery will take longer as well. Growth in some segments of discretionary items, and oil and gas could go hand-in-hand with economic growth. But these growth rates will most likely depend on how fast the economy grows post this pandemic.
Others sectors like logistics, could get affected for longer periods as export-import trade, and movement of capital goods and auto are forecasted to shrink. While cement demand could be brought up by retail buying for the pre-monsoon repairs, but industrial demand is expected to shrink for the most part. Hence, it is possible that these sectors could see slow and gradual growth. Pharma, consumer staples and utilities will remain necessary even in bad times.
Valuations of consumer staples are quite high already, but there are opportunities in consumer discretionary and healthcare. India has shown strong performance in discretionary and consumption in the past and these could turn out to be the new leaders with the starting point of valuations, ownership, and performance.
Segments like non-banking financial companies, metals, real estate, autos and logistics are already facing a higher erosion in market cap since the peak on 20 February. And, the chances of that changing is uncertain.
Issues like these are observed as market cycles and the economy is expected to make a strong comeback as has been observed in the past. Market volatility is what creates income, so it is best to find stocks that are under-owned and undervalued, as these could turn out to be a great investment as the economy recovers.
