The weak show by listed companies in the March quarter of 2020 is but a precursor to the abysmal numbers that are expected in the coming quarters. Despite the lockdown being enforced for just 10 days in the March quarter, companies had begun witnessing declining demand and severe compression in earnings. The 1,024 companies that have declared results for the quarter have registered around 6 per cent decline in revenue and 55 per cent decline in profit compared to the corresponding quarter in 2019. The sharp decline in commodity prices and crude oil provided some relief at the operating level, but tight liquidity conditions increased the finance cost by 6 per cent.

The earnings picture is going to get worse this fiscal year. With movement restrictions, supply chain disruptions and shortage of labour expected to extend until the third quarter, earnings of listed companies are expected to decline at least 30- 40 per cent in FY21. The impact will, however, not be uniform across sectors. Also, a relatively resilient rural demand is expected to mitigate the impact of job losses and pay cuts on urban demand. The six-month moratorium on term loans has added to the uncertainty on the asset quality of banks and non-banking finance companies. The focus of the banks in the coming quarters will be more on risk management and cost efficiencies, rather than profitability. Information Technology companies managed to tackle this phase relatively better, with minor impact on operations, but delayed payments from clients and demand for discounts have been a concern over the last two months. This has led to most companies freezing pay hikes and stopping fresh recruitments. Most pharma companies have also witnessed relatively smaller declines in profit, with some companies manufacturing drugs used for Covid treatment and improving their revenue over the last few months. Construction activity came to a complete halt during the lockdown, and though companies are attempting to resume operations, issues such as reverse migration, logistics problems and material shortage pose serious hurdles. Besides this, the working capital cycle is also impacted due to delayed payment from clients, including the government.

Of concern is the fact that the current crisis is still unfolding. While companies are attempting to be optimistic about demand reviving and economic activity gathering pace from the third quarter of FY21, it may be better to be prepared for an extended impact. SEBI, the RBI and the Centre have been doing their bit to relax the compliance burden, providing liquidity and reducing the debt burden of companies. But these measures may not be enough if the impact is more severe than anticipated. The Centre needs to be ready to provide additional support by reducing tax liability, restructuring loans, converting interest accumulated during the moratorium to term loans, etc. The credit guarantee scheme can be expanded to more companies, and targeted lending to distressed sectors such as airlines and hospitality needs to be considered.