Coronavirus outbreak: Analysts cautious on sectors with high debt

The Covid-19 pandemic has disrupted economic activity. Analysts say sectors with high debt and where revenue accretion has been hit due to the lockdown could undergo maximum pain.

On the other hand, sectors, such as consumer goods and healthcare with little or no debt and limited business disruption, are expected to snap back faster from the crisis. An analysis by Motilal Oswal shows consumer, technology, health care and cement companies are least leveraged, while telecom, infrastructure, utilities, and metals have the highest leverage.

While the telecom sector debt is high, the impact on revenue is low. On the contrary, the lockdown has increased telecom and data usage.

Analysts say investors could steer clear of stocks in the sectors that have high debt and high impact on revenues because of the Covid-19 pandemic. “While strong balance sheets or continuing demand during — and an anticipated sharp pick-up in demand post — the lockdown will support the resilience of some sectors, collapsing discretionary demand or high leverage will likely constrain the others,” says a note by Crisil.