The surge in Covid-19 cases since mid-February 2021 may to hit the gems & jewellery sector and automotive dealerships, which have so far benefitted from the release of pent-up demand, according to rating agency Crisil.
Somasekhar Vemuri, Senior Director, Crisil Ratings, the sharp rise in Covid-19 cases and the impact of any stringent containment measures on businesses are the key threats to the nascent demand recovery. They could impact the credit quality outlook adversely.
Out of 42 sectors covered by study only six (accounting for four per cent of rated debt) are highly sensitive to a Covid-19 resurgence, while 20 are moderately sensitive. Airlines, airport operators, hospitality and retail, which have a long road to recovery, are sure part of the highly sensitive sectors. Other sensitive sectors are gems & jewellery and automotive dealers.
Meanwhile, Crisil’s said ratio of upgrades to downgrades (called Credit ratio) for October 2020-March 2021 (H2FY21) improved to 1.33 in the second half of fiscal 2021 from 0.54 in H1FY21. The strengthening of the demand recovery and GDP growth returning to positive territory in the third quarter (Q3FY21) helped improvement.
The impetus to infrastructure development in Union Budget 2021-22, steady farm performance and sustained rural demand, together with rollout of vaccination, hold promise for continued improvement in the credit quality of India Inc. However, the spectre of a second wave of Covid-19 infections looms large.
There were fewer downgrades across the spectrum in the second half despite the sunset of policy and regulatory measures such as the debt servicing moratorium in August and relaxation of default recognition norms in December 2020. These had provided temporary relief at the peak of the lockdown.
“The emergency credit line guarantee scheme (ECLGS) provided much-needed liquidity support to jump-start business activity in the second half of the fiscal. But the biggest driver for the increase in credit ratio were the unlock measures, which released pent-up demand across sectors, kick-started the economy and got cash flow from operations flowing for India Inc, said Subodh Rai, Chief Ratings Officer, Crisil Ratings.