Low interest, high government spending come to the rescue of infra sector

According to these agencies, with the unlocking of the economy, some sectors have seen an improvement in profitability. However, he said, if this happens then the third wave of Kovid-19 could pose a risk. For example, CARE Ratings believes that the construction sector saw significant pain in the first six months of FY21 as the pandemic brought with it performance challenges due to migration of labour.

The Reserve Bank of India (RBI) has so far maintained its liberal stance and has pledged to support growth as long as necessary. Since the start of the pandemic in March last year, it has reduced the repo rate by 115 basis points (bps). In addition, regulatory support such as the Emergency Credit Line Guarantee Scheme (ECLGS) and the RBI’s COVID-19 debt restructuring window also aided recovery.

CARE Ratings reported that the Revised Credit Ratio (MCR) of the construction sector has improved in the first six months of FY 2022 as the pace of execution in the unlock process has picked up. Revenue visibility increased along with infrastructure boost in government spending, which improved profitability.

“The fears of uneven sectoral recovery have largely been dispelled. Positive rating actions were largely observed across sectors, indicating a broader economic recovery. In contrast, last year’s positive rating action was limited to a few sectors,” said Suparna Banerjee, associate director, India Ratings and Research.

Banerjee said the rating action is supported by the following factors: Several high-frequency indicators are seeing a faster-than-expected rebound, demand is back, exports have seen strong volume growth, strong commodity prices have passed. And the government is continuously focusing. at the expense of infrastructure.

That said, experts are cautious about referring to the upgrades in these areas as a sign of macroeconomic recovery. Conversely, as there has been credit upgrades from sectors such as ferrous metals, pharmaceuticals, healthcare, power, construction and engineering, ICRA believes that the upgrades are not what they appear to be.

“Despite a large proportion of upgrades, underlying business fundamental metrics across most sectors, even those that have seen the most upgrades, are unlikely to exceed pre-Covid levels in the near term. At best, these are only expected to catch on,” said a note by Icra on October 1.

Mint reported on October 2 that credit ratings of Indian companies improved significantly in the financial first half, in contrast to the first wave, with businesses facing less supply-side disruptions during the second wave of the pandemic as firms continued to operate.

On the one hand, the overall rating action trend suggests that India has moved past the period of heightened economic uncertainty and extreme pressure seen on businesses. On the other hand, the headline numbers do not necessarily suggest that the recovery is broad-based and even from a credit perspective, the Icra note said.

Meanwhile, the government has announced an ambitious asset monetization plan ₹6 trillion, the funds will be used to create new infrastructure assets. The government’s list for monetization includes 26,700 km of roads, 90 passenger trains, 400 railway stations, 28,608 circuit km of transmission lines, 286,000 km of BharatNet fiber network and 14,917 towers owned by Bharat Sanchar Nigam Limited and Mahanagar Telecom Nigam Limited.