Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Economy Growth 9

Since the last 75 years, the world was progressing in its own rhythm and had forgotten what a major global disruption looks like. The Covid-19 pandemic thus created a deep impact in every sphere of life all around the world and changed everything overnight. Although the pandemic is primarily a health issue, its contagious nature and inherent death toll imprisoned people in their homes, changed their lifestyle and brought the economy to a complete standstill.

Looming uncertainties and a complete transformation of consumer priorities changed the commercial outlook of businesses. Some high-flying companies were brought down to their knees while few other companies scaled new heights. By reviewing the performance of 50 large corporations that maintained a market cap of US$ 10 billion before January 2020, we try to understand which sectors of the economy was worst hit by the pandemic and which sectors were better positioned to deal with the change.

As can be seen in the chart below, the best performing companies during the pandemic are of American and Chinese origin.

 

Tech-giants that catered to the needs of consumers digitally have been the largest gainers despite the state-imposed lockdowns. Companies like Amazon, Apple, PayPal, Alibaba, T-Mobile and Facebook registered good growth because consumers needed their services while they stayed indoors in order to be safe.

With a growth of 431% Zoom Video Communications was the largest gainer of the pandemic. However, as the workforce gradually returns to offices, only time will tell whether the company can remain in this high growth trajectory in the coming months.

With a 200% boost in market cap, Tesla became a major gainer, however, its stock split announcement made on 11th August 2020, is considered to a prime factor for its growth. It is precisely due to this reason that Tesla’s future growth is assumed to be rather uncertain.

Pinduoduo, NVIDIA, Shopify, DocuSign, Meituan Dianping and United Parcel Service experienced a fair growth in market capitalization and owning to the changing habit of consumers, are expected to stay the course in long term.

Companies like Tencent, Thermo Fisher, Netflix, Adobe, Costco, Target, Lulumelon, have a good consumer base and a strong market presence. Although these companies saw marginal rise in market cap, they are expected to continue growing steadily.

Now, a look at the worst hit companies.

Interestingly, most of the worst affected companies are also US based but here the sector-wise effect is visible more distinctly. Oil and Gas companies have been the greatest losers with Occidental Petroleum topping the list with a drop of 74%, while other sector companies have mostly witnessed a decline by more than 40%. Oil price crisis is the primary reason behind this dip, and nothing can be predicted with certainty about the future of the sector.

Companies from sectors like Aerospace and Defense, Airlines, Travel services, Hotels and Lodgings, Resorts and Casinos and a couple of Banks are among the worst losers of market cap in the period.

Shift in consumer behavior – A key factor

Since this pandemic was a black swan event, that resulted in complete shut down of certain sectors, some companies were destined to take the hit. Hospitality and travel services were not required during the lockdown and hence the related companies had to suffer massive losses. Due to the shift in consumer needs, these companies didn’t even have a chance to diversify or modify their services to meet new consumer demands.

Similarly, some sectors like technology and digital services were best positioned to cater to rising consumer demands. With the whole world working from home and staying connected through virtual meetings, Zoom Video Communications provided a high in demand service and gained substantially.

However, these emergent trends can very well be temporary. As and when the vaccine arrives, there will be another shift in consumer behavior, and no one can be certain about how it will reflect on the economy and corresponding correction in market capitalization.

 

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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