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Indian corporate sector likely to sustain improvement in Q3FY21 on strong festive demand: ICRA

03 Dec 2020 Evaluate

ICRA Ratings in its latest report has said that the Indian corporate sector, which gradually returned to normalcy from the second quarter of the current fiscal, is likely to sustain improvement in the third quarter, aided by strong festive demand. During the second quarter, sequential recovery from Q1 FY21 levels was visible across sectors as the lockdown restrictions eased. Some sectors were even able to bounce back to pre-COVID levels and post revenue growth on an annual basis. It said ‘on the demand side, we expect that India Inc would gradually revert to normalcy and would be able to sustain improvements in Q3 FY2021, given the seasonally strong festive season’.

The agency said rural demand continues to be on a positive trend, supported by the normal monsoon, healthy crop outputs, and government support in the form of increased MNREGA allocations, MSME guarantee loans, among others, he said. The recovery is expected to continue to be rural-led, while urban India would gradually catch up. Nevertheless, the sustainability of the recovery, post the ongoing festive season, would remain critical in determining the overall macroeconomic recovery trajectory.

However, it added that the occurrence of a second or third wave of pandemic can reverse the recovery in the absence of a vaccine so far. Icra said its analysis of financial results of 587 companies in the Indian corporate sector (excluding financial sector entities) showed aggregate revenue growing by 34.9 per cent in Q2 from Q1 levels, although it remained lower by 6.5 per cent on a year-on-year basis. The margins too have registered an improvement during the second quarter.

The report said commodity-oriented sectors such as cement, iron and steel and metals and mining sector also reported sequential and y-o-y recovery, supported by firming up of commodity prices as well as volume expansion; and aided by a pick-up in industrial activity. Industrial and infrastructure-oriented sectors, on the other hand, while exhibiting sequential recovery, are yet to reach their year-ago levels, and contracted by 11 per cent and 14 per cent on an annual basis respectively during the second quarter. It further said some sectors like aviation and hotels continue to face challenges, which are expected to persist over a prolonged period. The hotel sector continues to grapple with historically-low occupancy levels, despite some quarantine-related and healthcare staff traffic diverted to hotels.

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