July 21, 2020

Key Business Challenges To Track While Investing In Stock Markets

Learning to think from an employer perspective as to how Covid may impact a business is certainly one of the key parameters to judge while you pick stocks of a business entity. Below is one such example, that shall help you to assess how challenges look like for each of the below business sectors.

Challenges To Manufacturing Sector:

a> Displacement of migrant labour’s due to shutdowns is one of biggest challenges.
b> Companies are put to test as to how they convince – labour unions, gram panchayats & other legally empowered authorities to deal with during forced lockdowns – whether to enforce wage cuts or not.
c> Impact on employee’s morale with no salaries is certainly a crucial factor during these tough times.
d> Companies will require strong cash flows to even implement social distancing strictly amongst all employees in factories.

Challenges To Retail Businesses:

a> Consumers are stocking in essential supplies which has very low margins & doesn’t contribute significantly to overall retail business as these sectors are very price sensitive.
b> Most FMCG companies make huge margins on products which are linked to festival shopping other than discretionary shopping essentials like packing materials, decoration etc. So it’s interesting to see how Corona scare plays out during festival times & with all lockdowns – which leads to over all high spending on other supplies rather than essentials.
c> Stay careful while you assess – Retail warehousing companies & Retail product oriented companies – they are not the same. For Ex: Dabur is a FMCG product oriented company, While DMART is a retail hypermarket business chain which sells FMCG products under its business.

Challenges To Automobile Segment:

a> To assess sales of automobile companies, its important to monitor sales of auto ancillaries companies like – wire manufacturing, battery component, hydraulics – so only if these companies are making sales that will in turn indicate automobile companies are really doing good sales.
b> E-Way bills are generated when commercial vehicles move goods from one place to another. So Increased/decrease in E-Way Bills will tell you – if there is increased goods movement, which can indicate if commercial automobile sector is recovering. This can be a leading indicator to assess growth of commercial automobile companies.

Challenges To Real Estate:

a> The growth of real estate sector is judged by assessing revenues on companies like Tiles, Cement, Sanitary, Paint, Plywood companies – its only when these companies make sales, it will indicate real growth of real estate sector.
b> It’s equally important to understand real estate from financing angle – If banks makes a statement which indicates their liability portfolio such as real estate loans has been increasing, this in turn also should reflect on growth of real estate sector.

Challenges To Textiles Companies:

a> Shop keepers aren’t able to find support staff – due to migrants leaving the city, frequent lock downs, this is leading to ‘NO Sales’ – ‘No Salary’.
b> Branded retail companies which has businesses centred around urban markets – will bear the brunt of – No footfalls in malls, No footfalls in streets.
c> Textile mills are loosing out on business when there is poor demand for ready made cloths & merchandise.

 

Challenges To Banks:

a> Key parameters to judge health of banks include – Higher or Lower – NPA’s, increase or decrease – Net Interest Margins, increase in Current Account / Savings Account holdings.
b> The key success of a banking sector is – how quickly they can build their liability portfolio by way of lending to industrial units, NBFC’s, HNI’s & also increased participation in business debt purchase programmes. These loans yields higher interest rates to the banks rather than retails loans (working class customers).
c> It’s extremely important for banks to have a good mix of secure & unsecured loans in its basket, for a high growth rate.

 

Challenges To Media Industry:

a> Media Content creation is a huge challenge for media houses, as they will need to cater to viewership of people sitting at home.
b> Content Developers like movie makers or serial content producers have many choices to launch their products. With the popularity of social media avenues , OTT platforms like Amazon Prime, Netflix, Disney HotStar & many more. For Ex: Most TV Serial producers are looking to prepare their content to cater to ‘Season’ wise release on OTT platform rather than on conventional Television mediums.
c> Growth of ‘Branded’ theatres are equally proportional to openings of malls, as their social distancing policies will ultimately impact footfalls.

Key Policy Changes From Government That May Impact:

Government’s has plans to divest their stakes in PSU sectors – like HAL, Coal India, SAIL, Cochin Shipyard business, HPCL, NTPC. When government starts selling it’s stakes in these companies to raise capital, this could trigger huge movement in stock prices.

 

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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