Singapore: A sharp rise in infections in India will disrupt the recovery of companies’ records recorded over the past six months, according to a research report by Moody’s Investors Service.
A long-term and wider exclusion will have a serious effect on the recovery of earnings
India’s largely regional and less stringent closures amid the second wave of coronavirus cases have so far had a limited impact on economic activity.
However, if infections do not drop to more manageable levels, the closure could lengthen and increase, which according to the new report will have a greater impact on the earnings of companies.
‘Movement restrictions and a weaker consumer sentiment amid the second wave of viruses will temporarily hit home and car sales as well as the demand for transport fuel. The growing consumer preference for remote solutions and personal mobility will continue to drive long-term demand for larger homes and entry-level cars, ”said Sweta Patodia, an analyst at Moody’s.
“Demand for IT and telecommunications services will remain strong despite our expectation that economic activity will slow in the next few months.”
Strong global demand could boost Indian steelmakers’ exports, given the relatively weaker demand for automotive and white goods manufacturing in the current quarter. Exports are therefore an attractive opportunity because local steel prices are lower than international prices, ”said Kaustubh Chaubal, vice president and senior credit officer of Moody’s.
Meanwhile, Tata Steel Ltd. (Ba2 Steel) and JSW Steel Limited (Ba2 Steel) divert some of their capacity in oxygen production to medical use amid shortages, but their large oxygen producing plants will limit the impact on steel production.
At the same time, a slowdown in construction activities will reduce the demand for cement. The growth of cement consumption in the financial year ending March 2022 may be lower than Moody’s previous forecast of 10% -12%.
The high basic expenditure on government infrastructure and a supportive demand for housing support the fundamentals of the sector and support the earnings of UltraTech Cement Limited (Baa3 negative), the report states.
Refinancing risk will be manageable for most issuers, as they have strong access to funding markets due to their strong balance sheets or their status as government-owned companies. However, refinancing could be a problem for companies with weaker balance sheets, Moody’s said.
So far in the current year, the government has not declared loan moratoriums, which supported liquidity in 2020. This could put pressure on liquidity for weaker entities, the report said.
Source: Telangana Today