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Lockdowns in 2021 are less stringent and more localised, and business behaviour has adjustedFitch Ratings expects the impact of India’s second Covid-19 wave on majority of its rated corporate universe to be manageable. Most companies’ credit profiles are supported by their strong market positions, adequate balance sheets and liquidity, diversified operations, and/or flexibility to adjust costs and key business drivers until operations recover with the easing of restrictions.There are, however, several entities with low rating headroom or which could be subject to negative rating action if India’s sovereign rating (BBB-minus/negative) or country ceiling (BBB-minus) are downgraded.”We believe the second wave will have a less severe impact on corporates than in 2020 despite a higher infection rate. Weaker domestic demand is a key channel of risk transmission for businesses,” said Fitch.However, lockdowns in 2021 have been less stringent and more localised, and business/societal behaviour has adjusted, supporting activity.Fitch expects the greatest demand impact within our rated portfolio to be felt by Oravel Stays (OYO) and Future Retail as weak consumer sentiment affects discretionary spending in fields like hospitality and non-food retail.Technology and telecom companies are the least likely to see weaker demand. Falling demand for diesel and gasoline will hit throughput at refining companies but stronger refining and marketing margins will aid their profitability, said Fitch.”We expect lower curtailment risk for domestic power producers than in 2020 but further delays in payments from state-owned power distribution companies (discoms) can weaken cash flows and liquidity.”Execution delays in construction projects can affect demand for building materials and steel. “But we expect activity to pick up once the current wave subsides and high prices to support margins. Improving global demand will support sectors like steel, chemicals and pharmaceuticals.”

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