By: Mahesh Patil
The world has been turned upside down since February by the coronavirus pandemic. We have been forced to stay indoors; companies have been forced to drastically change working practices; some industries, such as online shopping or videoconferencing software, have seen a surge in demand.
But once the pandemic is over, how many of these changes will stick? What will be the long-term impact on society, the workplace, consumer attitudes, and companies’ strategic planning? How should investors position themselves to take advantage of secular changes in the sectors that will be most affected, ranging from health care and technology, to real estate, retailing, and travel?
It is worthwhile to take a closer look at the social and industry implications of the coronavirus pandemic in this context. Let us assume that, within the next 12-to-18 months, the pandemic will be a thing of the past, either because a vaccine has been developed, or because enough people have caught it for herd immunity to develop. And, people will feel comfortable again about being in crowded spaces and traveling, without a need for social distancing or periodic lockdowns.
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. They can attend meetings, as well as conferences and seminars, online. A recent study found that 35% 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 like shopping, education, entertainment, gaming, etc.
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, it is likely that they will 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.
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. Hence, government policies towards education and healthcare will need to be re-thought.
Personal mobility may get a fillip with people avoiding public transport and ride-sharing and preferring to buy their own 2-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 setup. 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 for 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 unorganized to organized. Demonetization and GST had triggered a wave of consolidation in favour of larger, organized players. Cash stress post Covid and still high share of unorganized players across sectors could trigger second wave of consolidation.
In addition, technology driven disruptive models could lead to disintermediation. Wholesalers are struggling with cash stress while technology (eCommerce) is helping brands reach retailers and customers directly. Hence, large companies with established brands and connect with consumers could benefit.
To summarize, even after the COVID-19 pandemic is over, many behavioural changes that were forced on society by social distancing will likely remain. Individuals who have gotten used to working from home, shopping online, and using the internet for socializing and entertainment will continue to do so. 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 author of this article is Co-CIO, Aditya Birla Sun Life AMC Limited
This article first appeared on The Hindu Business Line on August 24, 2020
The views and opinions expressed are those of Mahesh Patil, CIO – Equity, Aditya Birla Sun Life AMC Limited and do not necessarily reflect the views of Aditya Birla Sun Life AMC Limited (“ABSLAMC”) /Aditya Birla Sun Life Mutual Fund (“the Fund”). ABSLAMC /the Fund is not guaranteeing/offering/communicating any indicative yield/returns on investments.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.