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COVID19: Is It A New Risks For Companies

It is time for all of us to slow down but fasten our seatbelts……….

Photo Credit : ShutterStock

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The last couple of months have been a reality check that mankind is nothing but a small constituent of this universe and extremely vulnerable to unseen and unknown risks. On March 12, the World Health Organization declared that Coronavirus (COVID-19) is now a pandemic. COVID-19 is being classified as a black swan event given it checks both boxes: rare occurrence and high impact. Much has changed for the world over the past eight weeks and the global economic outlook and growth rates are being revised downwards almost daily. 

COVID-19 has affected India more recently. It started in China where it seems to be under control, but it is spreading rapidly and both Europe and the United States have declared emergency. While there is a concerted global effort to manage the risk, things are likely to get worse before they improve.

In India, COVID-19 is impacting businesses by disrupting supply chains, travel, production and consumption, threatening operations and financial markets. Companies find themselves navigating a new reality, addressing issues from crisis response and cyber threats to valuations and financial stress. Daily headlines and the uncertainty of the infection’s duration are exacerbating these concerns.

For India, it is important to stop the spread of COVID19 early. Given the large size of the country, our relatively weaker sanitation levels and limited healthcare infrastructure, a full-blown virus can have a material impact on the economy and will take months for the country to recover. The country has responded well so far but the battle has just begun.

While sectors like aviation, tourism and hospitality are suffering the most, other sectors will also face the heat of global slowdown and supply-chain issues. Consumer led sectors including textile (garments), automobile and consumer goods (durable and FMCG) will suffer from poor demand which may sustain longer than a few months. With the unemployment rate likely to increase in the near future, consumption-led sectors are likely to bleed. Similarly, sectors like automobile and renewable energy (solar) are heavily dependent on imports from China and will see their supplies tumble due to the shutdown of factories in China. Various experts and economists are currently pegging the impact of COVID19 on Indian economy to be 0.25% (best case) to 1%  (worst case). However, it is premature to make any such estimates as the world hasn’t witnessed a COVID-19 like an event over the last 75 years.

In 2018 and 2019, India witnessed its two best years for M&A and private equity. While initial expectations were of a repeat in 2020, COVID-19 will have a huge impact on investment flow. M&A, other than distress sale, will slow down in the coming months due to weakening valuations, inability to raise funds and limited cross-border interest. With stock markets tumbling down (3 days from March 2020 feature among the 10 worst days in the history of US stock markets), the investor confidence is low and most companies and funds will focus on conserving cash.

COVID19 is also going to create new risks for companies, especially with growing dependence on technology. Cyber-criminals recognize that governments, public-sector institutions and corporations are anxious to learn the latest information concerning COVID19 and they will take advantage of this to create opportunities to induce employees to get desperate and act in haste. We are already witnessing a growing rate of system breaches and malware ranging from ransomware to remote access trojans providing the criminals with ongoing access to your network. This can create serious business risks as all your data and information may be accessible externally making you vulnerable and open to litigations and penalties.

It is time for all of us to slow down but fasten our seatbelts……….

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Tags assigned to this article:
coronavirus outbreak COVID-19 coronavirus pandemic

Tarun Bhatia

The author is Managing Director, Investigations and Dispute Practice at Kroll

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