Three Sectors Remain Unscathed (So Far) From Covid-19 Hit
The novel coronavirus pandemic has stalled economic activity, threatening to push the world into a recession, and most sectors are feeling its impact.
The new virus—which has so far infected more than 400 people in India and killed seven—caused both demand and supply-side disruptions in the already slowing economy. That prompted the central and state governments in Asia’s third-largest economy to adopt certain measures, including sealing borders and curbing non-essential services, to contain the spread.
But here are the three sectors that have remained unscathed from the impact of the virus outbreak as yet.
As the number of Covid-19 cases mount, the nation urged its citizens to stay at home and practice social distancing. That’s expected to aid the telecom sector as Indians consume more data.
In January and February, when China—the epicenter of the virus outbreak—was under lockdown, revenue of telecommunications services rose 1.5 percent compared to last year, according to the data released by the Ministry of Industry and Information Technology of the People’s Republic of China. The growth rate for the first two months of 2020 was the highest in the last 12 months. Mobile data traffic, too, rebounded after declining for 10 straight months, the data showed. Subscriber additions, however, took a hit, likely exacerbated by the lockdown.
Work-from-home and social distancing are expected to boost data usage by 10-15 percent in the home broadband and mobile space in India, according to Rajiv Sharma, head of equity research and telecom analyst at SBICAP Securities. But that’s likely to be offset by the ongoing slowdown in the economy, leading to only to a 5 percent growth in the companies’ top line, according to him. Also, the bundled plans that offer long-term recharges assure good revenue outlook and customer stickiness, Sharma said.
India’s telecom sector, however, is facing a bigger problem. A recent judgment by the Supreme Court asked the carriers to pay interest and penalty on pending statutory dues stemming from the court’s earlier order to include non-core revenue to calculate the payouts. That dealt a blow when the sector is already bruised by a cheap tariff war launched by Reliance Jio Infocomm Ltd.
India committed to spend nearly Rs 10,000 crore ($1.3 billion) to encourage companies to manufacture pharmaceutical ingredients domestically after the coronavirus outbreak disrupted supply chains, raised the specter of drug shortages.
The impact of Covid-19 on Indian pharma has so far been limited due to existing inventory levels across supply chain but this can change if supply shortages from China continue through the end of April, according to Sameer Baisiwala, analyst at Morgan Stanley. India has a meaningful dependence on China for its raw material supplies, he said in a report. The global generic supply chain, however, can remain unaffected if the active pharmaceutical ingredient/intermediate shipments from China normalise over next two to four weeks, Baisiwala said.
The government has also issued guidelines for testing by private labs in the country, set price caps for such tests, and roped in national laboratories as the number of confirmed cases rise.
Any escalation in the incidence rate could see a “one-time bump up” in domestic formulation sales for the sector, according to Chirag Talati, senior analyst at Kotak Securities. But the Covid-19 testing is unlikely to contribute meaningfully to diagnostics revenues, he said. The benefit from Covid-19 testing is likely to be offset by potential declines in day-to-day walk-in business, particularly in the wellness segment, as well as potential loss of business-to-business volumes due to lower elective procedures, Talati said.
Agreed Prashant Nair, deputy head of research at Citi. Right now, there’s near-term risk to healthcare businesses as outpatient visits and elective procedures get pushed out as people opt to stay away from hospitals unless unavoidable.
The Insurance Regulatory Development Authority of India has asked insurers to cover Covid-19 cases in their existing policies as well as ensure that they expeditiously attend to the coronavirus claims.
One of the factors that work in its favour is that it’s an under-penetrated sector and hence, the impact will be low compared to other segments, according to Neeraj Toshniwal, research analyst at Emkay Global.
Mihir Vora, director and chief investment officer at Max Life Insurance Company Ltd., said there might be some short-term disruptions due to logistics but structurally there should not be an issue. Life insurers are selling more of protection policies and there is less dependence on Ulips, so the product mix is more balanced now, he told BloombergQuint.
Also, the insurer is not as cyclical as other financials, Vora said. “We don’t get impacted by the asset quality cycle. Like in case of banking, when there is a positive cycle you see better income and margins but when the cycle turns there are NPAs,” he said. “We don’t have that kind of cycle so we are in a better position.”
Even general insurers are likely to have limited impact from the virus outbreak.
In fact, the insurance regulator’s decision might lead to an increase in inquiries for health policies, Emkay’s Toshniwal said. “There will be a positive for health insurance with more people buying policies in the current scenario,” he said. “It will be a follow up impact and not an immediate one.”
Nidhesh Jain, research analyst at Investec, said general insurance is “counter-cyclical, given the negative correlation of loss ratios to economic activity”. Also, impact of Covid-19 on health insurance is likely to be low given the sector’s under-penetration in India, Jain said in a note.”There’s also a possibility of re-insurance to kick-in, capping losses.”