Debt of consumer discretionary firms faces a downgrade

Companies in the consumer discretionary segment are facing the brunt of Covid-19 disruption with them comprising more than half of adverse ratings – downgrades, negative outlook – between April. 15 and May. 15, India Ratings said.

Of the negative 27 ratings action that it undertook between April 15 and May 15, 2020, specifically driven by COVID-19 led disruptions, 53% of its negative rating actions have been in the consumer discretionary segment such as gems and jewellery and auto ancilliaries, India Ratings said. Eight ratings were downgraded while 19 ratings were either put on a Negative Outlook or placed on a rating watch negative.

Ratings firm Crisil has forecast that consumer discretionary services and products are expected to be worse hit by the Covid-19 disruptions. Revenues could dip by upto 30 per cent in in FY’21 in a worse case secnario, it said. While rival Icra has categorised retail, gems and jewellery, in the high risk category- those sectors that face severe business disruption over the immediate term. Further, business recovery post crisis would also likely be more prolonged, heightening credit risks. On the macro-economic from most have factored in about a 5 per cent contraction in the economy.

Rating agencies have been regularly communicating their assessments, forecasts and the rating sensitivities ever since the nation-wide lockdown on March 24, disrupting economic activity because of which corporates across industries are facing many challenges

Apart from undertaking a review of the liquidity position of the rated entities over the near term, ratings firm Icra may also be redrawing its projections for various cases, by assuming that a ‘business as usual’ operating environment may not return soon. Even after easing restrictions of economic activities since mid-May, the output has not revived as labour constraints continue and may takes several months to get back to normal.

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