Prolonged COVID-19 outbreak to impact Indian industry: CRISIL

Any prolonged outbreak of the deadly coronavirus (COVID-19) will impact Indian industry which will face serious disruptions, ratings agency CRISIL said.

COVID-19 will have a mixed impact across India Inc’s sectors in the fourth quarter of this fiscal, CRISIL said in a report.

The report pointed out that sectors such as auto components, pharma bulk drugs, and agro chemicals can survive the COVID-19 headwinds to some extent in the near term, given inventory stocks of two months.

“However, as inventories run down, industry will face significant pressures,” the report said.

“Overall, that would eventually result in more sectors being negatively impacted, outweighing the positives.”

As per the report, credit profiles of firms in select sectors could also get impacted if the supply disruption continues beyond March such as automotive components, renewables (solar) and diamonds.

“Both diamond and automotive component sectors are already witnessing demand sluggishness for over a year; also the automotive sector is on the cusp of adopting BS-VI regulations effective April 1, 2020, leading to higher cost of components and hence vehicles,” the report said.

“Also solar projects worth Rs 16,000 crore could be at risk of penalties for missing their project completion deadline if the coronavirus impact prolongs and delays supplies of solar panels.”

On the flip side, the report mentioned that sectors that are highly import dependent from China, such as ceramics and plastics, are expected to benefit Indian domestic manufacturers, with import volumes reducing.

Moreover, India’s steel, paper, leather and textile readymade garments (RMG) segments have a window of opportunity to expand exports, as China’s own shipments from these sectors account for a sizeable pie in global trade, which now stand impacted due to COVID-19.

“However, sectors such as aluminium, electronics, and pharma bulk drugs in India will be unable to meet the void created by China’s virus problem in global trade, as they either are running at peak utilisation or face capability issues,” the report said.

Additionally, the ratings agency said that with the weather getting warmer over the next two months, it expects the impact of the outbreak to subside in China by April 2020.

“That is the best case. In the worst case, the epidemic might well extend through the first quarter of fiscal 2021, intensifying the severity of impact,” the report added.

“If not contained quickly, the epidemic will have a knock-on effect on the world economy and disrupt global supply chains. China is the world’s second largest economy and a major trade partner for many countries, including India.”-IANS News