Negative outlook list may get longer, Q1 biz to be hit

At risk of entrenched rough times are sectors like hospitality and those with discretionary spends.

Flagging an adverse impact of the surge in Covid-19 cases, rating agencies have said some more sectors could move to the “negative outlook” list.

Disruption due to lockdown curbs may impact business performance in the first quarter ended June 2021 (Q1FY22) before recovery in the second quarter (Q2FY22). Ramnath Krishnan, president of ratings, ICRA, said the agency would revisit the sectoral outlook for FY22 (made in February 2021) and evaluate the impact on sectors and the overall economy.

There are some sectors with a negative outlook. Some more could get added to the “negative outlook” category.

In February, things seemed to be coming under control with vaccination, giving the impression the system would cope with the pandemic.

In April, the situation went into reverse.

At risk of entrenched rough times are sectors like hospitality and those with discretionary spends, said rating agency executives.

Before rating action (like a downgrade) on corporate or entity-level loans and bonds, it is the outlook may change, for instance, from “positive” to “stable” or “stable” to “negative”.

CARE Ratings chief executive Ajay Mahajan said, given the gravity of the situation, the agency was beginning a fresh review of sectors and entities.

Subodh Rai, senior director and chief ratings officer, CRISIL, said the spread of Covid-19 had become more wide now. The Industry Resilience Framework, developed last year to track the pandemic impact, continues to guide monitoring. The six sectors with low resilience include retail, hospitality, gems and jewellery, airlines, and automotive dealership.

CRISIL’s ratio of upgrades to downgrades (called the credit ratio) for October 2020-March 2021 (H2FY21) improved to 1.33 in the second half of FY21 from 0.54 in the first half.

“At this point of time the assessment is disruption may happen but I do not see a large-scale impact on credit quality,” Rai said.