COVID-19 second wave#39;s impact on majority of Indian corporates manageable, says Fitch

Fitch Ratings (File image/PTI)

Fitch Ratings (File image/PTI)

The impact of COVID-19 second wave on a majority of Indian corporates is “manageable”, market analyst Fitch Ratings Inc said on May 31. The fallout on the private sector is not as worse as seen in the same period during 2020, it said.

The reasons behind businesses surviving the worst brunt of the pandemic, claims Fitch, is due to the imposition of  “localised” lockdowns rather than a blanket shutdown, and the adjustments made by corporates in accordance with the restrictions.

“We believe the second wave will have a less severe impact on corporates 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,” said a release issued by Fitch.

The impact of the second wave on the majority of India’s “rated corporate universe is expected to be manageable”, the American credit rating agency noted.

The credit profiles of most companies 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”, it added.

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, Fitch said.

The agency predicts the “greatest demand impact” within its 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”.

Also Read | Biggest toll of COVID-19 second wave is in terms of ‘demand shock’: RBI

Technology and telecom companies are the least likely to see weaker demand, it added.

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

For the power sector, the agency expects lower curtailment risk for domestic producers than in 2020. However, further delays in payments from state-owned power distribution companies (discoms) “could weaken cash flows and liquidity”, it warned.

Similarly, the construction sector could be hit by “execution delays in construction projects”, the agency said. This could affect demand for building materials and steel, Fitch claimed, but added that the activity in this sector is expected “to pick up once the current (COVID-19) wave subsides”.

The improvement in the COVID-19 situation across the world would also directly improve the “global demand” for sectors like steel, chemicals and pharmaceuticals, Fitch suggested.