Mutual Funds

Covid-19 trends: What will stay, what won’t

Mahesh Patil | Updated on August 23, 2020

What have been the social and industry implications of the pandemic? Here’s a look

The world has been turned upside down by the Covid-19 pandemic.

We have been forced to stay indoors; companies have been forced to drastically change working practices; some industries, such as online shopping or video-conferencing software, have seen a surge in demand.

But once the pandemic is behind us, how many of these changes will stick on? How should investors position themselves to take advantage of secular changes in the sectors that will be most affected, ranging from healthcare and technology to real estate, retailing and travel?

It is worthwhile to take a closer look at the social and industry implications of the pandemic in this context. Let us assume that, within the next 12-18 months, the pandemic will be a thing of the past.

And, people will feel comfortable again about being in crowded spaces and travelling, without the need for social distancing or periodic lockdowns.

Home sweet home

One of the biggest trends that has impacted everyone’s life is work-from-home (WFH). The experience from the past few months has made it clear that employees do not need to be in the same physical space to do their work or to work together.

A recent study found that 35 per cent of jobs, mainly in education, professional services and company management, can be done from home. Many individuals who have gotten used to working from home and video-conferencing will continue these practices even as they may head to an office location nearby a few days in the month, if required.

Companies will, therefore, need to rethink their employment policies, as well as how they manage their office space.

This could lead to a decline in demand for commercial real estate, resulting in a decline in rents and value of office space.

At the same time, the need for data and fibre bandwidth will explode. Adoption of next-generation productivity and collaboration software capabilities will also get a boost.

The need for business travel will reduce significantly. In the current context, companies have taken measures to control their administrative and travel-related costs.

Many of these measures may remain in place post-Covid, leading to a sustainable increase in their margins. We are also seeing a change in consumer preferences — especially aversion to crowds and favouring online platforms — which will impact segments such as shopping, education, entertainment and gaming.

The pandemic caused a big acceleration in e-commerce the first few months of this year, as consumers were either not allowed to go outside or felt unsafe doing so. Many consumers bought goods online for the first time and, having experienced the convenience, are likely to continue to do so in the future.

Offline retailers are bound to see a shakeout. Fintech and digital payments will also get a boost in the online economy.

Choice

With the use of technology, students can choose when to listen to a lecture. Patients may also choose to go for online medical consultations. Entertainment can now be streamed at home.

Music lovers based in a small city can have the same access to a live (streamed) concert as those in major cities.

Personal mobility may get a fillip with people avoiding public transport and ride-sharing and preferring to buy their own two-wheelers and cars, maybe even second-hand. But this may be temporary, as the reduced need for commuting and travel may act as a dampener for demand.

The biggest trend on the business side is Make in India. The pandemic has forced companies to re-think their global supply chains and just-in-time inventory systems. There is a push within global companies to diversify their manufacturing set-up. At the same time, there is a pull from India, visible from its efforts to accelerate land, labour, and power reforms, and to fix infrastructure deficits.

The recent introduction of the Production Linked Incentive (PLI) scheme and the announcement of the import embargo on 101 defence items should drive domestic production and import substitution in sectors such as electronics and components, consumer durables, chemicals, pharmaceuticals, and defence.

A second big trend is ‘Big becoming Bigger’ amidst a shift from unorganised to organised. Demonetisation and GST had triggered a wave of consolidation in favour of larger, organised players. Cash stress post-Covid and still high share of unorganised players across sectors could trigger a second wave of consolidation.

In addition, technology-driven disruptive models could lead to disintermediation. Wholesalers are struggling with cash stress while technology (e-commerce) is helping brands reach retailers and customers directly.

Hence, large companies with established brands and connect with consumers could benefit.

To summarise, amid a large structural shift, the biggest losers are likely to be commercial real estate, travel and offline retail.

The winners are likely to be technology, healthcare, domestic manufacturers, and larger companies with strong brands and customer connect.

The writer is Co-Chief Investment Officer, Aditya Birla Sun Life AMC

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Published on August 23, 2020
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