Second Covid-19 wave impact manageable for most of India Inc: Fitch

'Weaker domestic demand is a key channel of risk transmission for businesses. However, lockdowns in 2021 have been less stringent,' says the rating agency

The impact of the second Covid-19 wave on rated Indian firms is expected to be manageable, as most companies’ credit profiles are supported by their strong market positions, adequate balance sheets, liquidity and diversified operations, Fitch Ratings says.

They have the flexibility to adjust costs and key business drivers, until operations recover with the easing of restrictions.

There are, however, several entities with low rating headroom or which could face negative rating action if India’s sovereign rating (BBB-/Negative) or Country Ceiling (BBB-) were downgraded.

“We believe the second wave will have a less severe impact on corporations than in 2020, despite a higher infection rate. Weaker domestic demand is a key channel of risk transmission for businesses. However, lockdowns in 2021 have been less stringent and more localised, and business/societal behaviour has adjusted, supporting activity,' Fitch said in a statement.

The greatest demand impact is expected to be felt by Oravel Stays Private Limited (OYO) and Future Retail Limited, as weak consumer sentiment affects discretionary spending in fields like hospitality and non-food retail. Technology and telecom companies are the least likely to see weaker demand.

Falling demand for diesel and gasoline will hit throughput at refining companies, but stronger refining and marketing margins will aid their profitability.

Fitch said “ we expect lower curtailment risk for domestic power producers than in 2020, but further delays in payments from state-owned power distribution companies (discoms) could weaken cash flows and liquidity”.

Execution delays in construction projects could affect demand for building materials and steel, but the activity is expected to pick up once the current wave subsides, and high prices to support margins. Improving global demand will support sectors like steel, chemicals and pharmaceuticals, it added.