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Overall Recovery For The Service Sector To Be pushed Back To FY 2022

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India Ratings and Research (Ind-Ra) 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.

 

"While FY22 is likely to be better than FY20 for most of the sectors due to an improvement in revenue benefitting largely from elevated prices and pent-up demand resulting in higher volume growth, volatile commodity prices along with interest rates reversal and currency depreciation is likely to keep a check on profitability," Ind-Ra has stated.

The rating agency expects a moderation in growth in FY23, given a moderation in consumption and investment demand outlook and smoothening out of supply chain issues, and the consequent possible moderation in prices. 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 and/or those who have increased the debt levels and/or are faced with ongoing stress on cash flows having limited cushion to absorb any shock on leverage.

 

Overall Recovery For The Service Sector To Be pushed Back To FY 2022

India Ratings expects an overall median growth of 6.0% 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 per cent. The gains in FY22 is primarily a result of some level of consolidation resulting in bipolarisation, meaning larger companies growing faster than smaller ones. Moreover, excess cash used for deleveraging across sectors would result in higher operating leverage supporting the overall credit profile of corporates. However, sectors such as pharma, chemicals, cement or steel may witness some capital expenditure on account of higher liquidity cushion with them.

Story first published: Tuesday, May 4, 2021, 10:12 [IST]
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