Business Live: Companies in India face further rating downside in case of prolonged downturn, says S&P Global

Stocks continue to rally as investors bet on an swift economic recovery despite looming uncertainties.

A global ratings agency has warned that more Indian companies could face a downgrade if economic recovery takes too long to pan out.

Join us as we follow the top business news through the day.

10:00 AM

Sensex jumps over 200 points in early trade; Nifty tops 10,500

The benchmark stock indices have made a strong start to the day.

PTI reports: “Equity benchmark Sensex advanced over 200 points in early trade on Wednesday tracking gains in index-heavyweights Reliance Industries and ITC amid sustained foreign fund inflows.

After touching a high of 35,679.74, the 30-share index was trading 220.35 points, or 0.62 per cent, up at 35,650.78.

Similarly, NSE Nifty rose 56.45 points, or 0.54 per cent, to 10,527.45.

Asian Paints was the top gainer in the Sensex pack, rallying around 4 per cent, followed by ITC, Bajaj Auto, Bajaj Finance, NTPC and Titan.

On the other hand, HCL Tech, IndusInd Bank, PowerGrid and Infosys were among the laggards.

In the previous session, the BSE barometer rallied 519.11 points, or 1.49 per cent, to close at 35,430.43; while the NSE Nifty soared 159.80 points, or 1.55 per cent, to end at 10,471.

On a net basis, foreign institutional investors bought equities worth Rs 168.96 crore in the capital market on Tuesday, provisional exchange data showed.

According to analysts, news of disengagement between India and China has relieved participants, after days of heated arguments.

Further, positive sentiment in global markets and unabated foreign fund inflows also supported domestic equities, they said.

On the global front, bourses in Shanghai and Seoul were trading with gains in early deals, while those in Hong Kong and Tokyo were in the red.

Stock exchanges on Wall Street ended on a positive note in overnight session.

International oil benchmark Brent crude futures fell 0.52 per cent to USD 42.41 per barrel.”

9:40 AM

Companies in India face further rating downside in case of prolonged downturn: S&P Global

More bad news for Indian companies amid an extremely uncertain economic recovery scenario.

PTI reports: “Ratings agency S&P Global Ratings on Wednesday said companies in India face further potential rating downside if the recovery in corporate earnings is prolonged beyond 18 months.

About 35 per cent of credit ratings on Indian corporates have either a negative outlook or are on “CreditWatch” with negative implications, S&P Global ratings said in a statement.

“That increases to one-in-two ratings if we exclude debt-free companies in the IT sector,” it added.

Commenting on scenario, S&P Global Ratings credit analyst Neel Gopalakrishnan said, “for most of our ratings, we assume corporate earnings will recover over the next 12-18 months. There is downside risk to ratings if the downturn becomes more prolonged than we had expected.”

All but two out of seven companies with negative outlooks or on CreditWatch negative have speculative-grade ratings. Since these companies are more sensitive to earnings volatility, the downside risk increases even further, Gopalakrishnan added.

The ratings agency said corporates in India, especially the speculative-grade ones, were not well positioned for a downturn because of their debt-funded capital expenditure and acquisitions over the past two to three years.

“This had already led to lower ratings. The number of single ‘B’ ratings, for example, increased to about 33 per cent of total ratings at the end of 2019, from 13 per cent in 2016. However, most India companies had limited rating headroom for a downturn, especially one as sudden and sharp as the COVID-19 pandemic,” it said.

Given the weakened operating environment, S&P Global Ratings said it expects EBITDA for companies in sectors sensitive to the economy, such as automobiles and commodities, to drop as much as 25-30 per cent year-on-year this fiscal.

“We therefore, expect credit metrics to weaken in fiscal 2021 before recovering in fiscal 2022 with an earnings rebound. The credit metrics at the end of fiscal 2022 are still likely to be weaker than we had previously expected, resulting in lower ratings than prior to the pandemic,” it said.”

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