Covid-19 lockdown will impact India Inc’s credit quality: CRISIL

With the coronavirus pandemic impacting economic growth, rating agency CRISIL said it is being reflected in rating actions with as many as 469 downgrades as against 360 upgrades in the second half of the fiscal year 2019-20.

It also warned of further deterioration in the credit quality of India Inc and said that over the near to medium term credit, quality trends would be driven by the ability of companies to rebound from the near - standstill demand situation.

“Credit quality outlook in 2020-21 is weak, with economic recovery expected to be gradual and from the latter half of the fiscal,” said Somasekhar Vemuri, Senior Director, CRISIL Ratings in a media call.

However, the duration, spread and intensity of the pandemic will continue to materially impact the credit outlook for fiscal 2021, with rating downgrades likely to far outnumber upgrades.

According to the CRISIL study of 35 sectors, nearly 44 per cent of debt is in sectors which are expected to be in high resilience category. “Among these pharmaceuticals, fertiliser, oil refineries, power and gas distribution and transmission benefit from the essential nature of products and in some cases, even from government support,” it said, adding that telecom and fast moving consumer goods will see the least impact on demand during the Covid-19 disruption.

Nearly 52 per cent of debt is in sectors expected to be in moderately resilience category, such as automobile manufacturers, power generators, roads and construction. “While these sectors have moderate-to-high disruption due to the lockdown, key mitigating factors, which partially cushion the impact, include the presence of strong balance sheets or liquidity, or relatively faster demand recovery,” it said.

Around four per cent of debt is in sectors that are least resilient, such as airlines, gems and jewellery, auto dealers and real estate, given the discretionary nature of goods and services, and weak balance sheets.

In the financial services segment, the lockdown restrictions will have a near-term impact on both collections and fresh loan disbursements, it further warned.

CRISIL has already slashed its base-case gross domestic product (GDP) growth forecast for the new fiscal year to 3.5 per cent.

Vemuri said that the base case scenario is that the disruptions due to the national lockdown will be restricted to the first quarter of the fiscal and if there is a second wave later, some of the conclusions will be reworked and it is an unprecedented pandemic.

“It is really unclear at this juncture whether lockdown will end on April 14, disruption by lockdown will linger for one to two months. After lockdown is lifted, it will take about a month for things to come back to some degree of normalcy,” he said.

Gurpreet Chhatwal, President, CRISIL Ratings said that after the first quarter, the agency has factored in anywhere between three to 12 months for various sectors to resume normalcy.

“Strong balance sheets or continuing demand will support some sectors during the current lockdown. However, some other sectors could be hampered by collapsing discretionary demand or high leverage,” he said.

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