Moody’s Investors Service has affirmed a stable outlook for non-financial corporates in India on the back of easing pandemic restrictions, the government stimulus aimed at boosting consumption and investment, and a benign funding environment.
Besides, its 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.
“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,” said Moody’s Associate Managing Director Vikas Halan.
“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.”
A joint statement from the two, said prevailing low interest rates and the government’s reforms to boost domestic manufacturing will 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.
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.
Furthermore, 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 also 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.
In terms of 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 per cent recovery in India’s real GDP growth next year.
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, considering the uncertain timing over the reopening of international borders, potential risks from a resurgence in coronavirus cases or a delay in vaccine rollout.
The statement said that 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,” said Tyagi.