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Recovery path for several sectors delayed due to second Covid wave: India Ratings

Domestic agency India Ratings and Research expects the overall recovery path to be pushed back for most of the service-oriented sectors to FY22, owing to a major supply-side disruption from the second wave of COVID-19 infections.

The agency also expects the impact of the pandemic to spill over in FY23, with moderation in growth given a slowdown in consumption and investment demand outlook and smoothening out of supply chain issues.

“Although debt restructurings have been availed by a relatively a smaller number of entities in FY21, given other forms of fiscal or monetary support from the government such as Emergency Credit Line Guarantee Scheme, FY23 is likely to test the credit profiles of entities with a pre-existing debt-heavy balance sheet or those facing ongoing stress on cash flows,” the agency said in a report.

The ratings company expects an overall median growth of 6% for corporates in FY22 over FY20 and 21.2% over FY21. This is an increase from the agency’s earlier estimate of a median growth of 4.4%.

Also as per the agency’s assessment the discretionary spends have been worst hit. Realty, commercial retail is likely to be below expectation, given concerns about the impact of the pandemic on the upcoming providers of office space who are likely to struggle, as office offtake may be under pressure due to the continued prevalence of work-from-home culture.

“Sectors linked to consumer discretionary expenditure and exports are likely to witness a lower-than-expected improvement,” the agency noted. “Within these sectors, airlines, real estate residential and hotels would be the most severely impacted and may not see recovery until second half of FY22.”

Recovery paths for entities in these sectors would necessitate continued support from the fiscal and monetary authorities, failing which the recovery could get further extended, it noted.

The agency also expects corporate growth to decline 3%-5% in FY21 compared with its earlier estimate of a decline of 12.2%.