“The second wave has hit sectors, such as tourism, hotels, financials, and realty badly as their business has come to a halt. For financial stocks, there is the fear of bad loans piling up. They are all directly related to pandemic. Aviation, multiplexes, and the hotel industry will be directly impacted by curfews. These sectors will see earnings downgrades,” said G Chokkalingam, founder & CIO, Equinomics.
Shares of SpiceJet have dropped more than 30 per cent since February 15, while the fall in industry leader InterGlobe Aviation (IndiGo) has been in line with the benchmark Nifty. Analysts say the aviation sector is still better off as flights have not been halted.
“The impact of the second wave is being felt on stocks and earnings. More downgrades are likely as lockdowns continue. Stocks in the tourism, travel, retail, and hotel space can see the maximum downgrades. Aviation will be relatively unscathed as there is no travel ban as of now. Banking and financials are like the lifeblood of the economy. If the economy is weak, we will see small businesses getting impacted, and there will be fears of NPAs rising,” said Siddhartha Khemka, head of research (retail), Motilal Oswal Financial Services.
Shares of home and kitchen appliance manufacturers and amusement park operators have also corrected sharply in the past two months. IFB Industries has declined 25 per cent since February 15, while Voltas and Stove Kraft have seen double-digit decline. Wonderla Holidays has seen a 15 per cent fall.
Analysts say the consumer durable segment was expected to deliver strong growth during the April-May period amid rising temperatures. However, the curfews in major cities is likely to weigh on sales.
On the other hand, stocks in the health care, hospitals, pharma and diagnostic space will benefit the most as people will be spending more on health, Khemka said.
“This time around, restrictions are not as strict as in the last year. Hence, certain pockets of the economy will continue to do well. IT, pharma, metals, and FMCG will be less impacted, while the impact will be significant for retail, travel, tourism, and hotel,” said a note by Axis Securities.
The brokerage has scaled back its year-end Nifty target to 16,100 from 17,200. The brokerage says the consensus earnings growth estimates for FY22 can see sharp cuts.
“Basing the sensitivity analysis of the virus spread and the duration of lockdown, we estimate the FY22 earnings for the Nifty50 to decline 6 per cent to 16 per cent in the bearish case scenario,” it said.
Pratik Gupta, CEO & co-head at Kotak Institutional Equities, believes there will be downward revisions to this, as well as the next financial year’s earnings estimates.
“We were expecting Nifty earnings growth of 27 per cent and 18 per cent in FY22 and FY23, respectively, before the second wave. Now there’ll be some cuts to our estimates. In particular, sectors like hotels, airlines, multiplexes, and retail malls will be significantly impacted. But these sectors don’t have a big weighting in the Nifty. However, earnings growth in FY22 and FY23 should still be relatively strong on a year-on-year basis – this will be driven mainly by banks (lower credit costs), autos, and telecom (low-base effect due to losses at some companies in FY21), as well as metals (strong commodity prices),” he said.
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