INDIA: Moody’s Investors Service says that its stable outlook for non-financial corporates in India (Baa3 negative) reflects easing pandemic restrictions, government stimulus aimed at boosting consumption and investment, and a benign funding environment. Moody’s Indian affiliate, ICRA Limited, meanwhile, has also changed its outlook for some sectors, such as auto and textiles, to stable from negative on expectations of a swift demand recovery.
RECOVERY IN HOUSING AND CONSUMER SECTORS WILL HAVE KNOCK-ON EFFECTS ON OTHERS, SUCH AS STEEL
“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 steel, oil and gas, and cement,” says Vikas Halan, a Moody’s Associate Managing Director.
Prevailing low interest rates and the government’s reforms to boost domestic manufacturing will 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,” says K. Ravichandran, Executive Vice President and Deputy Chief Rating Officer at ICRA Limited.
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. Consequently, ICRA has maintained a negative outlook on sectors that remain most impacted by the pandemic in the near to medium term, including the aviation, hospitality, and retail sectors. Similarly, the outlook for the telecom sector remains negative, reflecting the structural changes it is undergoing.
GOVERNMENT WILL DRIVE INFRASTRUCTURE INVESTMENT, BUT RECOVERY WILL BE SLOW FOR MOST
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. Traditional infrastructure segments like power and transportation will likely receive the bulk of investments, as will segments with critical infrastructure gaps, such as healthcare, cold chain, water, and sanitation, over the next 6-12 months.
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, will drive profit and revenue growth.
As for the power sector, Moody’s recently revised its outlook to stable from negative, given the progressive improvement in electricity demand over the last few months and the expected healthy 10.6% recovery in India’s real GDP growth next year.
Moody’s does not expect the cash conversion cycle for power companies to worsen in fiscal 2022 due to further delays in payments from state-owned electricity distribution companies. Moody’s believes that India is taking steps to align its power generation mix toward its nationally determined contribution (NDC) commitments under the 2016 Paris Agreement. Renewable energy has had a 69% share in new capacity additions in the last four years, while coal-based additions have undergone a sharp slowdown.
“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 counter-balanced by weak offtake credit quality and transmission constraints,” says 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% of pre-pandemic levels. However, a full recovery is not expected until around 2023, considering the uncertain timing over the reopening of international borders, potential risks from a resurgence in coronavirus cases, or a delay in vaccine rollout. While growing passenger traffic will help boost airport revenue, a recovery in credit metrics will likely take longer for airports with sizable debt-funded capital spending plans.
“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,” says Tyagi.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the rating tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and the rating history.
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