Tag: Moody's

  • Sanctions on Russia might lead to impairment losses for ONGC, others: Moody’s

    Indian firms’ worth of investments in Russia’s oil and fuel fields could possibly be impaired as import bans and worldwide sanctions might constraint future money circulation producing capability, Moody’s Investors Service mentioned Thursday.

    Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL), Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) have invested in upstream oil and fuel property in Russia.

    “Import bans and international sanctions on Russia may constrain the future cash flow generating capacity of these assets and lead to impairment losses for the companies,” the ranking company mentioned in a be aware.

    While multinationals like BP and Shell have introduced withdrawal from Russia after its invasion of Ukraine, Indian firms haven’t introduced an exit from their Russian investments.

    This, Moody’s mentioned, will result in a restricted impairment within the worth of investments instantly, particularly underneath the present oil value surroundings.

    Indian companies have invested USD 16 billion in Russian property such because the Sakhalin-1 oil and fuel subject within the far east.

    Moody’s mentioned they might face hurdles in receiving dividend funds however the impression on earnings is not going to be vital.

    “If an growing variety of Russian banks are excluded from the primary monetary messaging SWIFT system, Indian firms may not have the ability to obtain future dividends from their upstream investments in Russia.

    “However, even in a situation where the companies cannot access these cash flows, the impact on their financial profiles will not be significant,” it mentioned.

    For most firms, dividend earnings from the Russian investments constitutes lower than 5-6 per cent of consolidated EBITDA.

    The US ban on the import of Russian oil and different worldwide sanctions on Russia might constrain the longer term money circulation producing capability of those property. Such developments would decrease the worth of the Indian firms’ investments and can seemingly lead to impairment losses.

    For IOC and BPCL, the Russian property accounted for lower than 5 per cent of their complete asset bases as of December 31, 2021. The two companies obtain earnings contributions from these property within the type of dividends.

    For ONGC, its Russian property accounted for round 12 per cent and 20 per cent of its manufacturing volumes and proved reserves, respectively, for FY2021.

    For OIL, these proportions stood at round 31 per cent and 24 per cent, respectively.

    For ONGC, the Russian property contributed to round 11 per cent of its consolidated EBITDA for FY2021. Around 8 per cent of this contribution got here from the Sakhalin-1 mission whereas the steadiness was within the type of dividends by CJSC Vankorneft.

    “Even if ONGC loses its entire earnings contribution from the Russian assets, the impact can be accommodated into ONGC’s credit profile,” Moody’s mentioned.

    The same scenario for IOC and BPCL wouldn’t have any materials impression on their monetary profiles as dividend earnings from the Russian investments accounted for simply round 2-4 per cent of their consolidated EBITDA for the fiscal ended March 2021 (FY2021).

  • Moody’s slashes 2022 India development estimate to 9.1% on decrease capex

    Moody’s on Thursday slashed India’s development estimate for the present yr to 9.1 per cent, from 9.5 per cent earlier, saying excessive gas and fertilizer import invoice may restrict the federal government’s capital expenditure.

    In its ‘Global Macro Outlook 2022-23 (March 2022 Update): Economic Growth will suffer as fallout from Russia’s invasion of Ukraine builds’ report, the score company stated Russia’s invasion of Ukraine has considerably altered the worldwide financial backdrop by way of three essential channels — spike in commodities costs, dangers to international economic system from monetary and enterprise disruption and dent in sentiment on account of heightened geopolitical dangers.

    It stated Russia is the one G-20 economic system that may contract this yr and forecast that its economic system will shrink 7 per cent in 2022, and three per cent in 2023, down from projected development of two per cent and 1.5 per cent respectively, earlier than the invasion of Ukraine.

    With regard to India, it stated the nation is especially susceptible to excessive oil costs, provided that it’s a massive importer of crude oil. Because India is a surplus producer of grain, agricultural exports will profit within the short-term from excessive prevailing costs.

    “High gas and doubtlessly fertilizer prices would weigh on authorities funds down the street, doubtlessly limiting deliberate capital spending.

    “For all of these reasons, we have lowered our 2022 growth forecasts for India by 0.4 percentage point. We now expect the economy to grow by 9.1 pc this year,” Moody’s Investors Service stated.

    It forecast development for 2023 at 5.4 per cent.

    The year-end inflation for India has been projected at 6.6 per cent in 2022.

    The Indian economic system grew 8.2 per cent within the 2021 calendar yr, after a 6.7 per cent contraction in 2020 — the yr of COVID outbreak.

    With regard to the worldwide economic system, Moody’s stated the potential for brand new COVID waves, financial coverage missteps, and social dangers related to excessive inflation may dampen the expansion outlook.

    Moody’s projected China’s economic system to develop 5.2 per cent in 2022 and 5.1 per cent in 2023.

  • Conservative price range estimates go away room for pandemic response, macroeconomic dangers: Moody’s

    Moody’s Investors Service on Friday stated India’s conservative price range assumptions go away room for the federal government to reply to prevailing macroeconomic and pandemic dangers over the following 12 months.
    The authorities assumes that inflation-adjusted actual GDP progress for fiscal 2021 will are available in at 9.2 per cent within the present fiscal ending March 2022, following progress of 13.6 per cent within the first half of the fiscal until September.
    Mirroring the federal government’s conservative progress assumptions, the revised price range estimates for fiscal 2021 present income receipts rising solely 27.2 per cent, which leaves some scope for additional features as soon as the fiscal accounts are tallied on the finish of March 2022, Moody’s stated.
    In its report Moody’s stated the concentrate on capital expenditure in 2022-23 Budget helps near-term progress, however poses challenges to longer-term fiscal consolidation.

    India’s price range initiatives a narrowing within the central authorities deficit to six.4 per cent of GDP in fiscal 2022, from an estimated 6.9 per cent in fiscal 2021.
    “The price range is characterised by a continued emphasis on rising capital expenditure to maintain progress momentum close to time period, because the economic system continues to rebound from its pandemic trough.
    “While conservative budget assumptions leave room for the government to respond to prevailing macroeconomic and pandemic risks over the next year, the path toward the government’s medium-term deficit target of 4.5 per cent of GDP by fiscal 2025 remains undefined,” it stated.
    The central authorities recorded a 67.2 per cent rise in income receipts over the primary eight months of the fiscal 12 months.
    The robust income consequence offsets underperformance on disinvestment. The authorities now expects disinvestment receipts of solely Rs 78,000 crore (round 0.3 per cent of GDP) in fiscal 2021, in contrast with the goal of Rs 1.75 lakh crore (0.8 per cent of GDP) introduced in final 12 months’s price range.
    “Relative to the government’s assumption of 11.1 per cent nominal GDP growth for fiscal 2022, its projection of a 6 per cent rise in revenue receipts appears achievable, balancing buoyant corporate tax, income tax, and goods and sales tax (GST) receipts against declines in dividends and other non-tax revenue,” Moody’s stated.

    It stated outstanding dangers to the deficit goal of 6.4 per cent of GDP for fiscal 2022 embrace the pandemic and inflation. Both of those components may spur further spending to assist the economic system, though execution dangers associated to capital expenditure may dampen general spending.
    “The announced budget is consistent with our view of gradual fiscal consolidation and a continuing increase in government debt through the next year to around 91 per cent of GDP,” Moody’s stated.

  • Second wave of COVID infections elevated financial institution’s asset high quality dangers: Moody’s

    Moody’s Investors Service on Thursday mentioned second wave of Covid infections has elevated asset dangers for Indian banks, however a extreme deterioration is unlikely.
    It mentioned that the second wave of coronavirus infections in India has exacerbated stress amongst people and small companies that had been hit the toughest by the preliminary outbreak. Still, various elements will forestall sharp will increase in downside loans, and banks have ample buffers to soak up anticipated mortgage losses.
    The nation’s financial restoration, a tightening of mortgage underwriting standards and continued authorities assist will forestall a pointy spike in downside loans, it mentioned.
    “A extreme deterioration of banks’ asset high quality is unlikely, regardless of an anticipated rise in new mortgage impairments notably amongst people and small companies that had been hit hardest by the virus outbreak.

    “This is because government initiatives like the emergency credit linked guarantee scheme (ECLGS) have been effective in providing immediate liquidity for businesses,” Moody’s Vice President and Senior Credit Officer Alka Anbarasu mentioned.
    In addition, accommodative rates of interest and mortgage restructuring schemes will proceed to mitigate asset dangers, such that the coronavirus resurgence will delay however not derail the enhancements in banks’ steadiness sheets that had begun earlier than the pandemic.

    Moody’s baseline expectation is that newly shaped non-performing loans (NPLs) at public sector banks will enhance almost 50 per cent to about 1.5 per cent of gross loans yearly within the subsequent two years.
    Nevertheless, banks’ common NPL ratios will stay largely secure, pushed by the decision of legacy NPLs and an acceleration of credit score progress, Moody’s added.

  • Moody’s cuts India development forecast for 2021 to 9.6%

    Moody’s Investors Service on Wednesday slashed India’s development projection to 9.6 per cent for 2021 calendar yr, from its earlier estimate of 13.9 per cent, and stated quicker vaccination progress might be paramount in proscribing financial losses to June quarter
    In its report titled ‘Macroeconomics India: Economic shocks from second COVID wave will not be as severe as last year’s’, Moody’s stated high-frequency financial indicators present that the second wave of COVID-19 infections hit India’s financial system in April and May. With states now easing restrictions, financial exercise in May is prone to signify the trough.
    “The virus resurgence adds uncertainty to India’s growth forecast for 2021; however, it is likely that the economic damage will remain restricted to the April-June quarter. We currently expect India’s real GDP to grow at 9.6 per cent in 2021 and 7 per cent in 2022,” Moody’s stated.
    Earlier this month, Moody’s had projected India to clock a 9.3 per cent development within the present fiscal ending March 2022, however a extreme second COVID wave has elevated dangers to India’s credit score profile and rated entities.

    Indian financial system contracted by 7.3 per cent in fiscal 2020-21 because the nation battled the primary wave of COVID, as towards a 4 per cent development in 2019-20.
    Stating that stringent lockdowns in economically important states will mar April-June quarter financial exercise, Moody’s stated the ten states which have been hardest hit by the second wave collectively account for greater than 60 per cent of the pre-pandemic degree of India’s GDP.
    Four states – Maharashtra, Tamil Nadu, Uttar Pradesh and Karnataka – contributed the most important shares amongst all states in monetary yr 2019-20.
    Moody’s stated quicker vaccination progress might be paramount in proscribing financial losses to the present quarter. As of the third week in June, solely about 16 per cent of the inhabitants had acquired one vaccine dose; of these, solely about 3.6 per cent had been totally vaccinated.
    “Mobility and economic activity will likely accelerate in the second half of the year as the pace of vaccinations pick up. The government recently announced a strategy to centralise vaccine procurement in order to boost vaccinations, which if successful, will support the economic recovery,” it added.
    Moody’s expects the general hit to India’s financial system to be softer than that through the first wave final yr. However, the tempo of restoration might be decided by entry to and supply of vaccines, and the energy of the restoration in personal consumption, which could possibly be hampered by the deterioration of stability sheets of low- and middle-income households from job, earnings and wealth losses.
    India’s second wave peaked at first of May; since then, new circumstances and each day deaths have continued to fall, and the quantity of people that have recovered from the virus has exceeded the variety of new infections since mid-May.

    India’s whole tally of COVID-19 circumstances crossed the three-crore mark with 50,848 new circumstances reported in 24 hours. The demise toll climbed to three,90,660 with 1,358 recent fatalities.
    “We assess the overall economic effect of the second wave to be softer than that during the first wave of the pandemic last year, although delivery of and access to vaccines will determine the durability of the recovery,” Moody’s added.

  • Moody’s cuts India’s development forecast to 9.3%, dangers of longer-term scarring

    Moody’s Investors Service on Tuesday slashed India’s development forecast for the present monetary yr to 9.3 per cent saying that the second wave of coronavirus infections hampers financial restoration and will increase danger of longer-term scarring.
    Moody’s, which has a ‘Baa3’ ranking on India with a destructive outlook, mentioned obstacles to financial development, excessive debt and weak monetary system contrain sovereign credit score profile.
    The US-based ranking company had in February forecast a 13.7 per cent financial development for the present fiscal (April 2021-March 2022). As per official estimates, the Indian economic system contracted 8 per cent within the earlier fiscal ended March 2021.

    “India is experiencing a extreme second wave of coronavirus infections which is able to gradual the near-term financial restoration and will weigh on longer-term development dynamics.
    “The surge of the virus, which has been driven by a highly contagious variant, has put significant strain on India’s healthcare system with hospitals overrun and medical supplies in short supply,” Moody’s mentioned.
    Stating that the second wave of coronavirus infections hampers financial restoration and will increase danger of longer-term scarring, Moody’s mentioned the reimposition of lockdown measures will curb financial exercise and will dampen market and client sentiment.
    However, it doesn’t count on the affect to be as extreme as through the first wave. Unlike the primary wave the place lockdowns had been utilized nationwide for a number of months, the second wave ‘micro-containment zone’ measures are extra localised, focused and can seemingly be of shorter length. Businesses and customers have additionally grown extra accustomed to working beneath pandemic situations.
    “As of now, we count on the destructive affect on financial output to be restricted to the April-June quarter, adopted by a powerful rebound within the second half of the yr.
    “As a result of the negative impact of the second wave, we have revised our real, inflation-adjusted GDP growth forecast down to 9.3 per cent from 13.7 per cent for fiscal 2021 and to 7.9 per cent from 6.2 per cent in fiscal 2022,” Moody’s mentioned.
    Over the long term, Moody’s expects development to be round 6 per cent.
    “The credit profile of India is increasingly constrained by obstacles to economic growth, a high debt burden and weak financial system. Policymaking institutions have struggled to tackle and contain these risks, exacerbated by the coronavirus pandemic,” it added.
    It mentioned mutually reinforcing dangers from deeper stresses within the economic system and monetary system may result in a extra extreme and extended erosion in fiscal power, exerting additional strain on the credit score profile.
    India started the third section of its vaccination marketing campaign for these aged 18-44 on May 1, making the vaccination out there to your complete grownup inhabitants. However, as of early May solely round 10 per cent of the nation’s inhabitants had obtained at the very least one dose of the vaccine.
    “A shortage of vaccines and logistical difficulties in reaching a large rural population (about two-thirds of the population) complicate the vaccine roll-out,” Moody’s mentioned.
    It added that the worldwide group has not too long ago contributed to India’s vaccine efforts with elevated medical and vaccine provides to assist tackle shortfalls. “The spread of the virus and the rate of vaccinations will have a direct impact on economic outcomes.”
    Moody’s expects the renewed surge within the virus to contribute to a marginal shortfall in income and a redirection of spending towards healthcare and virus response relative to what the federal government budgeted in February. It expects an wider common authorities fiscal deficit of about 11.8 per cent of GDP in present fiscal, in contrast with our earlier forecast of 10.8 per cent.
    “We expect the combined impact of slower growth and a wider deficit to drive the general government debt burden to 90 per cent of GDP in fiscal 2021 (April-March 2022), gradually rising to 92 per cent in fiscal 2023,” Moody’s mentioned.
    Just because the economic system gave the impression to be inching again to normalcy, India was hit by a second wave of infections, prompting states and cities to limit public actions and impose lockdowns, which have hit some companies arduous.
    India is going through the world’s worst outbreak of COVID-19 instances with greater than 3 lakh new day by day COVID-19 instances being reported for 2 weeks now and the brand new instances reached greater than 4 lakh new day by day instances over the weekend.
    Over the previous months, the outbreak in India has exploded, with experiences of superspreader gatherings, and shortages in hospital beds, oxygen and medicines.
    Coronavirus infections have crossed 2.29 crore because the virus surfaced in China greater than a yr in the past, with a demise toll of two,49,992.
    Last week, one other US-based ranking company S&P final week mentioned India’s GDP development fee may drop to 9.8 per cent beneath the ‘moderate’ situation, the place Covid infections peak in May.
    It may even to as little as 8.2 per cent in a ‘severe’ situation beneath which instances peak in late June. S&P in March had forecast India to develop at 11 per cent in present fiscal.
    Besides, Fitch Ratings had final month mentioned the resurgence of COVID-19 infections might delay India’s financial restoration, however received’t derail it, because it saved the sovereign ranking unchanged at ‘BBB-‘ with a destructive outlook.

    Fitch projected a 12.8 per cent restoration in GDP within the fiscal yr ending March 2022, moderating to five.8 per cent in FY23.
    Fitch Ratings had on Monday mentioned that India’s gradual tempo of vaccination may imply that the nation stays susceptible to additional waves of the pandemic even as soon as the present surge subsides.