Consumption sector will not be affected much by the 21-day lockdown

The 21-day lockdown will definitely have an adverse impact on the economy, as it will drag down the gross domestic product (GDP) in the subsequent quarters. I believe the full-year impact on GDP will be around 150 basis points (bps).  

However, it must be noted that there won't be permanent demand destruction. Once this lockdown gets over, things will return to normalcy. As regards specific sectors, consumption won't be affected as people will continue to buy daily use, essential commodities and staples. Also, with the announcement of a 21-day complete shutdown, people are buying things quite aggressively and there is some amount of hoarding, too. So the consumption sector will be quite unperturbed by this measure. Although, demand for perishable stuff will take a significant hit.

Coming back to investment in the equities, the present market condition is surely the right time to buy/accumulate stocks provided one has a long-term investment horizon, say at least three years.

As regards the financial sector, the decline has been very steep with even the bluest of the blue-chips falling like a pack of cards. Over ownership of stocks by mutual funds (MFs) and foreign institutional investors (FIIs) has led to the precipitous fall in the financial space.

This shutdown will have a negative impact on demand for loans by Micro, Small & Medium Enterprises (MSMEs). Also, there is a fear of growth not coming through which triggered panic selling. However, my sense is that the sector will rebound once the crisis subsides.

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Harendra Kumar is the managing director - Institutional Equities at Elara Capital. Views are his own.

(As told to Swati Verma)