The pandemic turned India Inc. more resilient but the ongoing war in Europe can cause some blips

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Last Updated10/03/2022

Policymakers and India Inc responded with restraint to the emergence of a third wave of covid infections fuelled by the virus’s Omicron variant.
However, Russia’s invasion of Ukraine and the punitive sanctions imposed on the former by the US and European nations has the potential to impact India Inc.

Companies have withstood two big waves of the pandemic by reorienting their business models, improving supply-chain and inventory management, pruning costs, and also bolstering liquidity.
Besides, a secular deleveraging trend, evident across sectors, has continued through the pandemic.
This was helped by plans for lower CAPEX by firms.

The ongoing tensions can impact India Inc in two ways:
First: higher commodity prices can squeeze the margins of downstream sectors, in case they cannot pass on input costs
Second: impact of war on trade activity in that region could affect growth for sectors dependent on those markets
Higher inputs costs and limited space to pass them on would moderate India Inc’s profitability this fiscal on-year
Still, a broad-based improvement in credit quality has been observed despite the intensity of covid’s second wave.

Crisil Ratings’ credit ratio (upgrades versus downgrades) rose to 2.96 times in the first half of 2021-22 from 1.33 times in the preceding half.
This trend accelerated in the second half of the current fiscal year.

There have been three drivers of this improvement
First, demand recovery;
Second, strengthening of India Inc’s balance sheets and the optimization of its cost structures; and
Third, accommodative policies and support from the government and regulators

While large corporates have fared better supported by their strong balance sheets and access to funds
Micro, small and medium enterprises (MSMEs) have borne the impact of the pandemic disproportionately.
They are also vulnerable to the current geopolitical risks

The banking sector will play a critical role in supporting the budgetary focus on capital expenditure, while the extension and enhancement of the Export Credit Line Guarantee Scheme is also credit-growth positive.
Overall asset quality is likely to improve on the back of a reduction in corporate non-performing assets (NPAs)

India Inc has used the crises of the past two years to become more resilient. New risks like ongoing war and rising crude prices are emerging but now it is gradually developing an antifragile regime against such risks