Conditions will improve for Indian corporates next year as economic activity picks up steam post-lockdown and earnings grow on the back of widespread demand revival across sectors, Moody's Investors Service said on Wednesday.
Most companies' earnings will grow as demand starts to recover following a sharp slump, and financially strong companies will maintain good access to funding, but speculative-grade issuers will face challenges, it said.
"Broad-based demand revival and a low base in 2020 will support strong GDP growth of 10.8 per cent in India in fiscal 2022 ending March 2022, following a decline of around 10.6 per cent in fiscal 2021 – the country's first contraction in four decades,” Moody's Analyst Sweta Patodia said.
In 2021, conditions will improve for Indian corporates as economic activity gathers pace post-lockdown and earnings grow on the back of widespread demand revival across sectors, underpinning Moody's stable outlook for the corporates next year, Moody's said.
"A combination of higher earnings and reduced capital spending will support deleveraging over the next 12-18 months,” Patodia added.
Overall recovery will remain fragile as new infections continue to grow – although at a slower rate – and therefore new lockdowns cannot be ruled out, which would hinder consumer demand and recovery, Moody's noted.
It said the low interest rate environment and widespread credit availability will allow corporates with strong balance sheets to refinance and grow. But liquidity will be tight for financially weaker issuers, exacerbating their operating challenges.
Moody's rates 21 Indian corporates across five key sectors: oil and gas, telecommunications, automobile manufacturers and suppliers, steel and mining.
It said the outlook for the Indian corporate sector reflects its expectations for fundamental business conditions for the sector over the next 12-18 months.
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