Wheelbarrows are parked on the side of the road during the first day of a 21-day nationwide government lockdown as a precaution against the COVID-19 coronavirus, in Kolkata on March 25, 2020.

Debagiotti Chakraborty | Norphoto | Getty Images

Moody’s Investors Service said on Wednesday that the outlook for India’s rated nonfinancial firms “stable” for 2021 as business conditions improve and economic growth is on the verge of recovery.

The rating agency said corporate earnings will grow as demand begins to recover, after a sharp drop in the past two quarters. According to Moody’s, the structural shift in consumption patterns should support demand growth over the next 12 to 18 months.

last week, South Asia’s largest economy has sunk In a technical recession as the September quarter GDP contracted 7.5%.

India’s growth trajectory veered off course in late March, when the country entered a national lockdown until May in order to prevent the spread of the coronavirus.

Economists said the high-frequency data indicated signs of improvement in subsequent months, but they cautioned that the recovery is fragile as infections continue to mount in India. While new cases are increasing at a slower rate, the prospect of further closures poses a risk to consumer demand.

Growth forecast

Sweta Patodia, Moody’s Analyst, said the broad recovery in demand and economic conditions in 2020 will support strong 10.8% GDP growth in India for the fiscal year between April 1, 2021 to March 31, 2022.

“These improved business conditions will lead to an increase in rated exporters’ profits, which we expect will return to pre-pandemic levels by the end of fiscal year 2022,” she said. “A combination of higher profits and low capital spending will support (debt reduction) over the next 12-18 months.”

Moody’s said the low interest rate environment and broad availability of credit will allow companies with strong balance sheets to refinance and grow. However, liquidity will be scarce for the financially weaker companies, which will make their operating challenges worse.

Regarding the debt obligations of some Indian companies, the rating agency said: “Specifically, about 39% of the total ($ 16 billion) of debt owed through 2022 relates to two financially weaker speculative sources.”

Sector trends

Moody’s ranks 21 Indian companies, including state-owned companies, across five sectors – oil and gas, telecommunications, auto manufacturers and suppliers, steel and mining. Currently, six of them have a stable outlook, 14 have a negative outlook and one company – Vedanta Resources – is under review.

oil and gas: Moody’s expected margins and working conditions in this sector to be calmer than they were before the pandemic began. Low oil prices are expected to affect the profits of some, and the continued weakness of refining margins will keep the profits of the refiners low.

Telecommunications: The profitability of the sector has rebounded due to increases in tariffs that increase average revenue per user, according to Moody’s. The major Indian telecom companies raised prices last December and Indian media reports indicate that they may do so again. The rating agency said auction prices for 5G spectrum are likely to be prohibitively expensive, which is a negative for carriers. 5G refers to the next generation of high-speed mobile internet which is said to enable faster web connections.

Automobile Manufacturers and Suppliers: Moody’s said car sales are expected to increase slightly in 2021 and beyond based on pent-up demand as well as new demand for Tier 1 vehicles as consumers are more likely to focus on safe distances.

Solid: Steel production is set to gradually resume after the national lockdown. Consumption is expected to rise by a “low one-digit” rate in fiscal year 2022, according to Moody’s.

Mining: The rating agency expects that a stable global industrial outlook for the mining sector will reflect better business conditions and increased production levels that will improve profitability among Indian companies. Increase capacity and reduce costs are set to support profits.