Some sectors may take time to recover even after lockdown: Rating agencies

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Permanent loss of demand is most likely in sectors such as retail, education, air, rail, road and river transport, logistics, real estate, entertainment, hotels and restaurants and other personal discretionary services, Crisil said.

Even after Covid-related lockdowns are lifted, some sectors could take a long time to recover from the shock of the disruption, ratings agencies said on Tuesday. While Icra said it was undertaking a review of its ratings portfolio assessing risks at both sector and entity level, Crisil said some sectors could face a permanent loss of request in the wake of Covid-19.

Icra is working on a sector heatmap, delineating high-risk, medium-risk and low-risk sectors, with a focus on analyzing the first two. Similarly, entity-level risk mapping involves categorizing risks in terms of most vulnerable, moderately vulnerable and relatively less vulnerable entities. High-risk sectors, such as aviation, gems and jewellery, tourism, hospitality and microfinance institutions are those facing severe business disruptions in the immediate term and where the recovery is more likely to be prolonged.

Medium-risk sectors, including automakers and auto accessories, construction, consumer durables and energy, face a relatively lower degree of business interruption and credit risk. Low-risk sectors like agricultural commodities, education, fast-moving consumer goods (FMCG) and telecommunications are unlikely to face a material disruption to business or a material increase in credit risk at any time. term, triggered only by the Covid-19 crisis, says Icra.

In addition to undertaking a review of the liquidity position of short-term rated entities, ICRA said it may also revise its projections for various cases, assuming that a “business as usual” operating environment may not not come back soon. This analysis would be an additional input for deciding on rating actions.

Jitin Makkar, head of credit policy, Icra, said following the agency’s rating action for FY2020, the Covid-triggered crisis has led to a general deterioration in credit quality. of India Inc. “The credit issues are overwhelming and would impact the credit profiles of a large number of entities across all sectors in an unprecedented manner,” he said.

Crisil said some sectors in the manufacturing and service categories could face a permanent loss of demand. In the industrial segment, sectors such as foodstuffs, cement, steel and other items used in construction, export items such as gemstones and jewelry and textiles are facing the threat a permanent loss of demand, or a scenario where even pent-up demand may not compensate for the loss. In other sub-sectors, such as consumer durables, car retailing and discretionary goods, there could be a carryover of demand.

“But the services sector could be hit harder because more of it supports industrial activity or is discretionary in nature,” Crisil said in a report, adding that some of that, however, will be offset by growth in telecommunications revenues due to increased data usage and increased media consumption.

Permanent loss of demand is most likely in sectors such as retail, education, air, rail, road and river transport, logistics, real estate, entertainment, hotels and restaurants and other personal discretionary services, Crisil said.

“So far, the services sector – which accounts for 41% of total exports – has held up well. But a recession in advanced economies would dampen prospects for information technology (IT)-based services and tourism, and reduce the growth of services exports,” the agency said in the report.

Some national services could continue to bear the brunt for an extended period even after the foreclosure is lifted, as consumers will be opposed to public transport – including air travel – and places of entertainment such as shopping malls and cinemas , hotels and restaurants , among others, observed Crisil.

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