How COVID-19 impacts your business

The outbreak of COVID-19 occurred at a stage when the Indian economy was already witnessing a slowdown. In the third quarter of the financial year 2019-20, the Gross Domestic Product (GDP) growth stood at 4.7%. This was the lowest in the last seven years. The lockdown imposed by the government to check the spread of coronavirus brought economic activities like production and manufacturing to a screeching halt. According to market experts, the outbreak of COVID-19 affected all sectors and businesses, including automobile, travel and tourism, entertainment, transportation, FMCG and retail, food service and so on. On 23rd March, 2020, the Sensex  witnessed its worst crash ever when it fell  by around 3,935  points or 13.15%.

Various estimates of business losses due to COVID-19:

● According to the United Nations Conference on Trade and Development (UNCTAD), the overall trade impact because of the outbreak of coronavirus would be around USD 348 million for India. As per the estimated figures, the amount of trade losses faced by different businesses would be as follows:
Chemicals sector - 129 million USD
Textiles and apparel sector - 64 million USD
Automobile sector - 34 million USD
Leather products - 13 million USD
Electrical machinery - 12 million USD
Metals and metal products - 27 million USD
Furniture and wood products - 15 million USD

● As per the figures of the Asian Development Bank (ADB), the Indian economy could face losses up to 29.9 billion USD.

● In April 2020, Goldman Sachs released a statement saying the economic growth of the country was estimated at 1.6%.

● According to the International Labour Organisation (ILO), over 40 crore workers of the unorganised sector will be unemployed because of the impact of COVID-19.

Let’s have a look at business losses in various key sectors:

Manufacturing:

Because of the outbreak of coronavirus, manufacturing was restricted to production of only essential items, thus resulting in tremendous business losses. Because of the exodus of migrant workers from cities, there is a huge scarcity of manpower to restart production. The worst business losses were faced by manufacturing MSMEs, which supply finished products to other industries. With reduced demand several orders were cancelled, and disruption of transportation services added to their woes.  These now face a severe cash flow crunch.

FMCG and retail sector:

This sector faced losses because of an increase in demand of FMCG products, while there was a subsequent depletion in their inventory. Alongside, a reduced workforce and disruption in the supply chain caused further business losses. Because of the lockdown, many people resorted to panic buying, resulting in scarcity of FMCG products. Even as most retailers struggled to deliver orders, some were forced to arrange for their own vehicles and employees for collecting goods from distribution centres. Bulk sales made to clients such as hotels and restaurants were also affected.

Travel, tourism and entertainment:

Because of the impact of COVID-19, the travel and tourism industry faced huge business losses. Among the first to be closed after the lockdown, this sector is still struggling to remain afloat. According to an estimate from the Indian Association of Tour Operators (IATO), the hotel and travel industry will face business losses up to Rs 8,500 crore. ^[1]The outbreak of coronavirus also negatively impacted the aviation industry, which was already facing severe liquidity crunch. More than 60 million employees of the Events and Entertainment Management Association were affected by cancellation of all important events, while shooting and release of films/TV serials have been put on hold. Losses in the entertainment industry are pegged at over 300 crore in the next two-three months.

Additional Read: What will it take for the tourism industry to recover from COVID-19?

Automobile sector:

The impact of COVID-19 has resulted in the automobile industry facing losses in revenue along with a sharp dip in production. According to figures from the automobile sector, the production of passenger cars alone has been reduced by around 2,40,000 units, thus resulting in an average revenue loss of Rs 2,300 crore each day.^[1] Sales are expected to be affected even after the lockdown is lifted, as there is low sentiment for purchasing vehicles among consumers.

The way forward for business:

Businesses across sectors have been forced to reevaluate and redesign their strategies to deal with the impact of COVID-19. In sync with the government support, businesses are drafting a recovery and action plan for the future. According to the shift in consumer demand, businesses are expected to design a viable business plan by incorporating the requisite investment and cash flow strategies.

Additional Read: What should be your investment strategy in a post Covid world?

Conclusion:

While companies build their financial muscle in the changed business environment, as an individual investor you too must endeavour to make the right investment strategies. Moneyfy from Tata Capital can help you invest across a wide slew of funds, like tax-saver funds and gold funds. You can also invest in SIPs with a minimal amount of Rs 500, using this app. You can easily download Moneyfy from the app store and begin your investment journey.