Most Fitch-rated firms in India would experience manageable impact brought by the wave of Covid-19, said Fitch Ratings recently.
Most companies’ credit profiles are being supported by their strong market positions, adequate balance sheets and liquidity, diversified operations, and/or flexibility to adjust costs and key business drivers, until operations recover with the easing of restrictions, the credit rating agency noted.
There are, however, several entities with low rating headroom or which could be subject to negative rating action if India’s sovereign rating (BBB-/Negative) or Country Ceiling (BBB-) were downgraded, the firm added.
The second wave will have a less severe impact on corporates than in 2020, despite a higher infection rate, said Fitch.
Weaker domestic demand is a key channel of risk transmission for businesses, but lockdowns in 2021 have been less stringent and more localised, and business/societal behaviour has adjusted, supporting activity, Fitch observed.
“We expect the greatest demand impact within our rated portfolio to be felt by Oravel Stays Private Limited (OYO, B(EXP)/Negative) and Future Retail Limited (RD), 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,” Fitch noted.
Falling demand for diesel and gasoline will hit throughput at refining companies, but stronger refining and marketing margins will aid their profitability, according to the company.
Fitch said it expects 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 activity would pick up once the current wave subsides, and high prices to support margins, Fitch predicted.
Improving global demand will support sectors like steel, chemicals and pharmaceuticals, the firm added.
