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Rating agency CRISIL raised the credit outlook of Corporate India to “positive” from “cautiously optimistic” for FY22, on the back of a sustained recovery in demand. The agency said that the second wave had weighed on the country’s economy and an increase in vaccination efforts is likely to lessen the impact of third wave if it happens.
The rating agency said the credit ratio in the first four months of fiscal year 2022 improved to more than 2.5 times, after it touched a low of 0.54 times in first half of fiscal year in 2021 and rebounded to 1.33 times in the second half of last fiscal year.
“Our outlook revision factors in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing,” said Subodh Rai, Chief Ratings Officer, CRISIL Ratings.
The study showed that the current economic recovery is broad-based as 28 sectors out of 43 sectors are likely to see a 100% demand recovery to pre-pandemic levels by the end of fiscal 2022, while six sectors are likely to see a rebound of more than 85%.
The report said that as the government focused on improving the country’s infrastructure, sectors such as construction and engineering, renewable energy are expected to get benefited and its rating improved. Steel and other metals sector also gained as company’s were able to sell their products at a higher price and witnessed higher profitability. Speciality chemicals and pharmaceutical companies continued to see an increase in domestic and export growth.
However, sectors such as hospitality, education services, etc. which are contact-intensive continued to be weighed down by the pandemic and have had more downgrades. But, intervention by the country’s central bank and government has provided relief to some sectors. The financial sector is also well placed today compared to last year as the sector was given emergency credit lines, moratorium and one-time debt restructuring for pandemic-affected companies. These initiatives prevented a rise in non-performing assets of banks and NBFCs.
The financial services sector was also supported by increased access to liquidity, higher capitalisation levels and better provisioning cover, but unsecured retail, and micro, small and medium enterprise loan segments are likely to be stressed in the near term.
The report noted that there are a few risks to India’s positive credit outlook including regional and temporal distribution of rainfall and its impact on prolonged recovery. Small businesses are likely to be more affected by any slump in demand, it added.