Conditions to improve for India Inc in 2021 as economy revives: Moody's

The earnings of most Indian companies will grow in 2021 as demand starts to recover following a sharp slump, supporting deleveraging, according to rating agency Moody’s.

Financially strong companies will maintain good access to funding, while speculative-grade issuers will face challenges.

Conditions will improve for Indian corporates in 2021, as economic activity gathers pace post-lockdown and earnings grow on the back of widespread demand revival across sectors.  This underpins Moody's Investors Service's “stable” outlook for Indian corporates in 2021.

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. It would follow a decline of around 10.6 per cent in fiscal 2021 – the country's first contraction in four decades, said Sweta Patodia, a Moody's analyst. "These improving business conditions will increase rated issuers' earnings, which we expect to return to pre-pandemic levels by the end of fiscal 2022. A combination of higher earnings and reduced capital spending will support deleveraging over the next 12-18 months," Patodia added.

However, the overall recovery will remain fragile as new infections continue to grow – although at a slower rate. Therefore, new lockdowns cannot be ruled out, which would hinder consumer demand and recovery.

Meanwhile, the low interest rate environment and widespread credit availability will allow corporates with strong balance sheets to refinance and grow. However, liquidity will be tight for financially weaker issuers, exacerbating their operating challenges. 

Specifically, around 39 per cent of the total $16 billion of debt maturing through 2022 pertains to such financially weaker, speculative-grade issuers, it added.