Question

During the current crises of Covid-19 pandemic, stock prices of most of the companies are falling in U.A.E but some stock prices are falling more than others. Explain using a theory/model discussed in this course why these stock prices are falling, also explain stocks of which sectors of the economy are being more affected, which are being less affected due to this Covid-19 pandemic. Is there any sector(s) that is benefiting from this crisis? Why are they benefiting?

Answer 1

The risk of covid 19 i.e. Coronavirus has affected global markets. Approximately 185 countries out of 195 are badly affected due to this pandemic. This pandemic has created a havoc due to high degree of contagiousness and brought about a standstill in the economy due to which industries/business have halted production and there isn't any cashflow in the system. This has led to mass layoffs by the companies. The aviation industry has taken a big hit and some companies have filed for bankruptcy.

The stock prices are reacting to this pandemic very strongly. This risk is a type of systematic risk/non diversifiable risk/ market risk. This has affected almost all the sectors, aviation, hospitality, beauty industry, cab aggregators, other transportation mediums, construction sector, co working space sector, etc. No company can control this risk. So stocks are reacting spontaneously to this pandemic.

But few industries are still thriving, like OTT, online education, FMCG, healthcare, etc.

Today in lock down, everybody's existence is dependent on necessities i.e. some basic food, entertainment and education. So OTT players like Netflix, hotstar, MX player, etc are thriving. FMCG i.e. fast moving consumer goods and services forms part of our daily life. People usually hoard these items especially in these times. Since movement of people is restricted, less use of transport. Due to less demand oil prices declined significantly. Most countries have stored oil in oil tankers in the ocean. This restriction on movement has created the demand for video conferencing which led to sudden rise of ZOOM.

Therefore, due to change in environment and economic circumstances some companies and thriving while others are on the verge of bankruptcy.