India Inc is staring at a bleak and forgettable fiscal year FY21, which is likely to see a 10 per cent fall in revenues and at least 15 per cent erosion in profits due to the COVID-19 pandemic, domestic ratings agency Crisil said on Thursday.
Loan servicing can become difficult as a result of the troubles, its research wing said, estimating banks' non-performing assets (NPAs) to rise by up to 2 percentage points to 11.5 per cent, and credit growth to slow down to 2 per cent.
At present, the country is under a 40-day lockdown till May 3, and there are indications of it being gradually withdrawn.
Crisil estimated one month of the lockdown to shave off 3 percentage points from the gross domestic product (GDP) and warned that its base case of 1.8 per cent growth for FY21 may fall to zero if the lockdown continues.
Its chief economist Dharmakirti Joshi said up to 4 per cent of the GDP will be lost permanently as a result of the crisis, which will lead to scores getting unemployed.
He said the fiscal support worth Rs 1.7 lakh crore announced till now is inadequate to fight the crisis.
Crisil expects a doubling of the stimulus to Rs 3.5 lakh crore with a focus on the industries segment in the second phase. Apart from the spending measures, there can be others like loan guarantees also, it said.
Joshi explained that countries having more fiscal space can afford to have longer lockdowns, while those like India with limited room will have to gradually open up to support the economy, and added that the containment measures should ease off by June.
However, the agency seemed to suggest that India Inc will be badly impacted due to the crisis.
"This is unprecedented and the numbers that we are estimating are historic, which you would like to forget sooner," Crisil Research's senior director Prasad Koparkar said.
Koparkar said Crisil did an analysis of 800 firms across sectors and came out with estimates for the fiscal 2020-21.
It expects India Inc's revenue growth to fall 8-10 per cent in the base case of 1.8 per cent growth and slide further to 12-15 per cent if the GDP is stagnant.
The more pronounced impact will be on profitability as it expects a 15-18 per cent decline in operating profit margins in the base case, which can go up to 30 per cent in the downside scenario.
As a result of this, credit metrics are set to weaken during the fiscal, Crisil said, pointing out that the level of the Rs 16 lakh crore corporate debt that stands the risk of slipping into being stressed will go up to 32 per cent from the earlier level of 22 per cent.
Koparkar said bank credit growth will slow down to 2-3 per cent and the retail segment, which had held on in the last few years, will also slow down as housing, auto and commercial vehicle sales suffer.
The heightened stress and the slow credit growth will take the overall NPAs to up to 11.5 per cent, a level last seen in FY18 after the asset quality review of the Reserve Bank of India (RBI).
The NPAs will be higher both on fresh slippages and also slower resolutions through mechanisms like National Company Law Tribunals, it said.
Without giving a number, Koparkar said NPAs in the retail segment will also rise as the spectre of unemployment plays out.
From a sectoral perspective, it said auto components, real estate, gems and jewellery, construction, airlines, textiles, poultry and meat business will suffer the most, while pharma, telecom and direct to home players in media will be the least impacted.
For telecom, the research is estimating a double-digit revenue growth on the back of the 40 per cent hike in tariffs last year, Koparkar said.
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