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Lockdown will hit credit profiles of India Inc, say rating firms

ICRA said the acuteness of the covid-19 impact remains uncertain at this stage and would depend on how quickly the pandemic is contained and the measures taken by government to soften the deleterious impact. (Photo: Mint)Premium
ICRA said the acuteness of the covid-19 impact remains uncertain at this stage and would depend on how quickly the pandemic is contained and the measures taken by government to soften the deleterious impact. (Photo: Mint)

  • Indian companies' credit quality had remained under pressure through fiscal 2020 amid a slowdown in the economy
  • In fiscal 2021, downgrades will continue to outnumber upgrades driven by economic impact of the pandemic

MUMBAI : Business disruption because of the ongoing nationwide lockdown will lead to a near-term worsening of the credit quality at Indian companies, which were already under pressure in FY20 due to sluggish consumption and investment, ratings agencies said. The ability of companies to rebound from near-frozen demand will be critical in the post-lockdown period.

Strong balance sheets or continuing demand will support some sectors during the current lockdown, while others may be hurt by collapsing discretionary demand or high leverage, according to Crisil Ratings. As the lockdown is lifted, credit profiles will be back to being driven by fundamentals such as economic recovery, demand resilience and normalization of working capital cycles. However, the duration, spread and intensity of the pandemic will continue to materially impact the credit outlook for FY21.

“Our study of 35 sectors, both from manufacturing and services, however, shows sharp variation in resilience in a post covid-19 landscape," said Gurpreet Chhatwal, president of Crisil Ratings.

Nearly 44% of debt is in sectors that are expected to be in the high resilience category, according to the agency’s estimates. Among these, pharmaceuticals, fertilizer, oil refineries, power and gas distribution and transmission benefit from the essential nature of products and, in some cases, even from government support. Telecom and fast moving consumer goods will see the least impact on demand. Indeed, some of their sub-segments may benefit from an increase in demand during the disruption.

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