COVID-19 resurgence in India will delay earnings recovery: Moody’s

Singapore: If coronavirus infections in India fail to decline to more manageable levels, lockdowns may be prolonged and widen which will have a more severe effect on companies’ earnings recovery, according to Moody’s Investors Service.

So far, the largely regional and less stringent lockdowns amid the second wave have had a limited impact on economic activity.

“Movement restrictions and weaker consumer sentiment amid the second virus wave will hit housing and automobile sales as well as transportation-fuel demand temporarily,” said Moody’s Analyst Sweta Patodia.

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“Still, rising consumer preference for remote working and personal mobility solutions will drive long-term demand for bigger homes and entry-level cars,” she said.

“Demand for IT and telecommunication services will remain strong despite our expectation of a slowdown in economic activity over the next few months.”

Kaustubh Chaubal, Moody’s Vice President and Senior Credit Officer, said strong global demand can boost exports from Indian steel-makers given relatively weaker demand from automotive and white-goods manufacturing in the current quarter.

“Exports are therefore an attractive opportunity because domestic steel prices are lower than international prices,” he said.

Meanwhile, Tata Steel and JSW Steel have diverted part of their capacity in oxygen production toward 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 activity will cut cement demand. Cement consumption growth in the fiscal year ending March 2022 may be lower than Moody’s previous forecast of 10 to 12 per cent growth.

Still, high government infrastructure spending and supportive housing demand underpin the sector’s fundamentals and support UltraTech Cement’s earnings.

Refinancing risk will be manageable for most issuers given their strong access to funding markets because of their strong balance sheets or status as government owned/linked companies.

However, refinancing can be a problem for companies with weaker balance sheets. The government has not declared loan moratoriums which supported liquidity in 2020 so far in the current year.

This can further pressure liquidity for weaker entities, said Moody’s.

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