Coronavirus may hit e-commerce and IT badly

Covid-19 has been the largest ‘black swan’ events of our times and the manner in which it will impact our lives going ahead remains to be seen. IT services and e-commerce are two key major verticles driving growth in the economy and the impact of the pandemic on these sectors could perhaps be a bellwether of how the larger economy could fare in the coming quarters.

In terms of its impact on the IT sector, a report by HDFC securities is cautiously optimistic, at the moment. It says that the IT sector is ‘built to last’ and will navigate through the near-term economic shocks.

Follow latest updates on the COVID-19 pandemic here

It sees an improvement in areas such as technology supply-chain (trends from leading global products & platform), and supply metrics (H-1B trends on wages, count & geo diversification).

Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas points out, “The outbreak has led to business disruptions in the industries such as travel and tourism/aviation/automotive/oil&gas. This could impact on new deal wins/addition of new accounts.”

In terms of Covid-19, the report sees a limited impact on service delivery but states that re-skilling and training will, in fact, reduce the demand-supply gap in new technologies, despite the supply shortage. The report cuts the Earnings per share estimates of major firms by up to 7%, factoring in a delay in pipeline conversion and core business volumes this quarter. The impact on the travel & hospitality segment is expected to be on the higher side of the spectrum.

Meanwhile, in an ideal scenario, with the Indian rupee tumbling, information technology companies would have benefitted, as they did in the October-December quarter of FY19 when soaring crude oil prices had sent rupee into a downward spiral. This is primarily because more than half of the IT companies’ revenues come in dollar terms.

However, analysts and industry watchers say that with most of their clients based in the US and Europe, two geographies that have been worst-hit by the coronavirus lockdown and set for a recession, the spends across the corporations are going to go for a toss -- and tech spends won’t be immune to it. The lesser budgets by the US corporations for their tech manoeuvres would mean lesser revenues for the IT services companies. The recession is likely to pinch the pockets of Bengaluru-based Infosys and Noida-based HCL, as both companies have the highest exposure to dollar revenues.

E-commerce impact

In terms of e-commerce, many companies in the home durables such as Big Basket and Grofers have recorded a spurt in order values and volume, resulting in some delays. A FICCI report states that a prolonged shutdown could, in fact, result in disruptions in the e-commerce space that could hamper the business, especially at a time when there is a surge in demand for home delivery of goods.

A report by consulting firm Redseer states that in terms of gross merchandise value, a clutch of e-tailing and hyperlocal businesses saw an uptick such as grocery (110-115%), E-pharma (50%-60%), beauty & personal care (120%-130%), smartphone/electronics in the first two weeks of March, compared to the same duration last month.

Meanwhile, the GMV of online services in some areas have taken a huge hit such as movie tickets (75-80%), mobility (45%-50%) and hotel bookings. Even online food delivery registers a 10% dip in the first two weeks of March. The report estimates that disruption in the China-driven supply chain, a slowdown in investments, decline in consumer spending and a focus on profitability are the major factors that are impacting consumer behaviour at this juncture.

According to five economists polled by DH, the combined effect of market spillover and lower economic activity due to lockdown owing to coronavirus on GDP growth could be in the range of 50-110 basis points. Of this, about half (up to 50 bps) hit is expected as a spillover from the equity meltdown in the markets.