India's severe second wave of coronavirus infections will slow near-term economic recovery and could weigh on longer-term growth dynamics, rating agency Moody's Investors Service said in a note on Tuesday.
‘If the second wave of the pandemic does not decline to more manageable levels and results in a prolonged and wider lockdowns, it will have a more severe effect on companies' earnings recovery’, it said. The resurgence of coronavirus infections in India that has led to regional lockdowns will put the brakes on rated companies' earnings recovery seen in recent months. Earnings have seen a rising trend since October 2020 following the easing of national and state-level lockdowns. But renewed restrictions in many states will weaken demand for goods and services, and disrupt the recent recovery trajectory.
It expects the negative impact on economic activity to be limited to June quarter, and that the economy will rebound in the second half of the year. However, if infections fail to decline to more manageable levels, lockdowns may be prolonged and increase in scope. This situation would severely weaken rated companies' earnings and derail the recovery seen over the last six months, it added. Widespread movement restrictions will lower demand for transportation fuel and reduce the capacity utilization for oil refiners.
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