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Moody’s says outlook for India’s nonfinancial companies is ‘stable,’ expects sharp GDP rebound

Closely Rickshaws are parked on a roadside during the first day of a 21-day government-imposed nationwide lockdown as a preventive measure against the COVID-19 coronavirus, in Kolkata on Tread 25, 2020.

Debajyoti Chakraborty | NurPhoto | Getty Images

SINGAPORE — The outlook for India’s rated nonfinancial companies is “stable” for 2021 as problem conditions improve and economic growth is set for a rebound, Moody’s Investors Service said on Wednesday.

Corporate earnings transfer grow as demand starts to recover, following a sharp drop over the last two quarters, the ratings agency state. A structural shift in consumption patterns would support demand growth over the next 12 to 18 months, according to Snappy’s.

Last week, South Asia’s largest economy sank into a technical recession as GDP for the September quarter creased 7.5%.

India’s growth trajectory was derailed in late March, when the country went into a national lockdown to the core May in order to stop the coronavirus from spreading.

Economists have said high-frequency data pointed to signs of recovery in subsequent months but warned that the recovery is fragile as infections are still rising in India. While new cases are ticking up at a duller rate, the possibility of further lockdowns poses a risk to consumer demand.

Growth outlook

Sweta Patodia, a Dismal’s analyst, said that a broad-based revival for demand and economic conditions in 2020 will support strong GDP lump of 10.8% in India for the fiscal year between April 1, 2021 to March 31, 2022.

“These improving business conditions intent increase rated issuers’ earnings, which we expect to return to pre-pandemic levels by the end of fiscal 2022,” she said. “A set of higher earnings and reduced capital spending will support (debt reduction) over the next 12-18 months.”

A low prejudiced rate environment and widespread credit availability would allow companies with strong balance sheets to refinance and enlarge, Moody’s said. But liquidity would be tight for financially weaker firms, worsening their operating challenges.

“Specifically, roughly 39% of the total ($)16 billion of debt maturing through 2022 pertains to such financially weaker, speculative-grade issuers,” the ratings intervention said about the debt obligations of some Indian companies.

Sector trends

Moody’s rates 21 Indian suites, including state-owned firms, across five sectors – oil and gas, telecommunications, automobile manufacturers and suppliers, steel and mining. At the jiffy, six have stable outlooks, 14 have negative outlooks and one company — Vedanta Resources — has its rating under judge.

Oil and gas: Moody’s predicted that margins and business conditions in this sector will be more subdued than in front the pandemic began. Low oil prices are expected to weigh on earnings for some and sustained weakness in refining margins will attend to earnings low for refiners.

Telecommunications: The sector’s profitability has rebounded due to tariff hikes that increased average revenue per owner, according to Moody’s. India’s major telcos raised prices last December and Indian media reports imply they may do so again. 5G spectrum auction prices are likely to be expensive, which is credit negative for telcos, the ratings instrumentality said. 5G refers to the next generation of high-speed mobile internet that is said to enable faster web connections.

Automobile makers and suppliers: Auto sales are expected to modestly increase in 2021 and beyond based on pent-up demand as well as novel demand for entry-level vehicles since consumers are likely to focus on safe distancing, Moody’s said.

Steel: Sword production is set to resume gradually following the national lockdown. Consumption is predicted to rise by a “low-single-digit percentage” in fiscal year 2022, concurring to Moody’s.

Mining: The ratings agency predicted a stable global industry outlook for the mining sector would end in better business conditions and rising production levels that would improve profitability among Indian companies. Talent ramp-ups and cost reductions are set to support earnings.

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