Stable outlook for Indian corporates: Moody’s and ICRA

Our Bureau Hyderabad | Updated on February 25, 2021

Rating agencies caution, however, that Covid threat still looms large

Rating agencies Moody’s and ICRA have given a stable outlook for Indian corporates as consumption and investment demand show signs of recovery but caution that the coronavirus threat still looms large.

While Moody’s stated that supportive government measures and funding environment would boost corporate and infrastructure recovery, ICRA said the recovery would be led by sectors such as ferrous and non-ferrous metals, auto and textiles, where operating conditions are improving rapidly.

The stable outlook reflects easing pandemic restrictions, government stimulus aimed at boosting consumption and investment, and a benign funding environment. Moody’s Indian affiliate, ICRA, has changed its outlook for some sectors, such as auto and textiles, to stable from negative on expectations of a swift demand recovery.

Growth drivers

“A rising preference for personal mobility vehicles, along with the government’s new voluntary vehicle scrappage policy, will support automobile demand. In the housing sector, the shift toward flexible work arrangements combined with tax incentives for affordable homes will propel demand. Increasing activity in the housing and auto sectors along with higher infrastructure spending will, in turn, drive demand in other key industries such as steel, oil and gas and cement,” said Vikas Halan, a Moody’s Associate Managing Director, in a statement after a Webinar today.

Economic recovery allaying fears over banks’ asset quality: Moody’s

Prevailing low interest rates and the government’s reforms to boost domestic manufacturing would also support corporates’ credit profiles.

According to ICRA, payment moratoriums, additional funding lines and one-time restructuring options have enabled corporates in stressed sectors like textiles, healthcare and auto ancillaries to successfully navigate the challenging environment.

“Additionally, we believe that low commodity prices and companies’ tight control over their operating and capital expenses have enabled them to conserve cash and maintain good liquidity — although rising commodity prices and the resurgence of coronavirus cases in some exporting countries remain key risks,” said K Ravichandran, Executive Vice-President and Deputy Chief Rating Officer at ICRA.

Pace of underlying growth in Indian economy remains subdued: ICRA

Infrastructure investment

Despite these improvements, India remains vulnerable to the threat of rising infections and fresh lockdowns, and to the risk of an uneven or underwhelming economic recovery.

Moody’s expects the Indian government will drive infrastructure investment for the next 1-2 years, which will help address infrastructure constraints and support future private investment.

ICRA has maintained a stable outlook for infrastructure-related sectors such as roads and ports, noting that growth in toll collections and the steady recovery in cargo growth, along with government measures to improve liquidity for companies in these sectors, would drive profit and revenue growth.

“India’s focus on greening its energy mix as well as its policy on priority for renewable energy offtake implies strong growth for renewable energy over the next several years, although this is counterbalanced by weak offtake, credit quality and transmission constraints,” said Abhishek Tyagi, a Moody’s Vice-President and Senior Analyst.

As for Moody’s views on the airport sector, monthly domestic passenger numbers had recovered to above 50 per cent of pre-pandemic levels. However, a full recovery is not expected until around 2023.

“A sustained improvement in economic growth will be key to boosting highway and port traffic. Steps taken by policymakers, including large-scale vaccination to contain the pandemic, will be key to the pace of recovery and growth of these infrastructure segments to pre-coronavirus levels,” Tyagi said.

Published on February 25, 2021

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