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www.brickworkratings.com May 2020
1
BWR DRISHTIKONE
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May 2020 2
Lockdown Exit: New Challenges
April 2020
The partial relaxation from the lockdown in the Indian economy has brought in new
challenges. The classification of districts in the country in terms of red, orange and
green zones and some relaxations in the orange and some more in the green zones
have helped in the limited resumption of economic activities. However, economic
activities are concentrated in urban agglomerations, and virtually all of them are in
the red zone, where not much activity is permitted. With livelihoods lost, an uncertain
future and little reserves to fall back on, millions of migrant workers are
understandably impatient, and even as they know about the bleak fortunes, are keen
on going back to their roots. Besides the logistic nightmare of transporting them, this
may start another wave of the virus spreading in areas not having witnessed the
spread so far. Furthermore, when industries finally resume operations in urban
agglomerations, they are likely to face an acute shortage of labour as it would not be
easy for the migrants to return after the lockdown is lifted.
According to the Home Ministry’s classification, there are 130 red zones, 284 orange
zones and 319 green zones. According to an Axis Bank study, the red zone has
around 40% of the population, contributes to more than 50% of the GDP, and has
over 70% of bank deposits and 83% of bank credit. In contrast, the 319 districts in
the green zone wherein there is maximum relaxation has nearly a quarter of the
population, but generates only 19% of the GDP and accounts for less than 10% of
deposits and 6% of credit. It requires 42 continuous days of no new cases for the red
zones to turn into green zones, which is likely to take a long time. Naturally, in this
uncertain environment, the migrant labourers concentrated in these metropolitan
cities do not see the resumption of activities anytime soon. Considering a strategic
approach would require dividing these large metropolitan districts into smaller areas
and allowing the resumption of activities in safer ones.
Small and Medium Enterprises (SMEs) are likely to face formidable challenges in
resuming activities. They have had to face huge losses during the lockdown period,
and without mounting loan repayment obligations, they are confronted with huge
defaults on repayments. The RBI has allowed a three-month moratorium on the
repayment of loans. The RBI’s regulatory forbearance helps, but borrowers will have
to eventually pay back. Furthermore, when they resume activities, there will be
urgent working capital requirements. After the first package by the Finance Minister,
there were reports that another package was in the works, and there were hopes of
a substantial package for the SMEs; the wait continues.
IN THIS ISSUE…
Macro Indicators
Economy Trends
Core Industries and IIP
Inflation and Repo Rate
Crude Oil and INR/USD
Merchandise Trade
Forex Reserves
Government Accounts
Sectoral Indicators
Banking
Automobiles
Telecom
Power
Steel
Airlines
Debt Market Indicators
Movement in Bond Yields
Yield curve
External Commercial Borrowings
Contacts Dr M Govinda Rao Chief Economic Advisor +91 8040409940 [email protected] Rajat Bahl Chief Ratings Officer +91 22 67456634 [email protected] Anita Shetty Research Editor +91 22 67456633 [email protected] Ria Matwani Research Editor +91 22 67456675 [email protected] Praveen Pardeshi Research Analyst +91 22 67456681 [email protected] Investor and Media Relations +9184339 94686 [email protected]
www.brickworkratings.com
May 2020 3
This brings us to the issue of the roles of the Union and States in calibrating the
relaxation from the lockdown. The subjects - public health and public order, are in
the exclusive domain of the States according to the Constitution. However, Entry 29
of the Concurrent List gives the Centre a legitimate role in the prevention and inter-
state spread of “…infectious or contagious diseases or pests affecting men, animals
or plants”. By invoking the Disaster Management Act, 2005, the Centre has
completely centralised the decision-making power. The “one size fits all” solutions in
a large and diverse country would pose severe constraints. The States are made to
merely act as its agencies.
The COVID-19 war has to be fought by the government closer to the people. While
the Centre can continue to give broad guidelines, it should trust the States and allow
them to take decisions instead of simply considering them as agencies to carry out
the Central dictat. Otherwise, with looming uncertainties and the migrant labour
leaving the city, the process of recovery will be prolonged. This is the time to play the
cooperative federalism game.
It is also important to fiscally empower States. They have been scraping the barrel to
meet increasing expenditures in saving lives. Now, they have to loosen the purse to
save livelihoods and help SMEs commence operations. In the lockdown period, there
is virtually no economic activity, and they are not able to generate revenues from
State excise duty, stamp duties and registration fees, motor vehicles tax or sales tax
on high-speed diesel and motor spirit. Even the GST compensation has been paid
only up to November. The position regarding tax devolution is equally precarious.
There could be a shortfall in the budgeted tax revenue at the Centre by more than
Rs. 6 lakh crore, and tax devolution to the States could be lower by almost Rs. 2.4
lakh crore during 2020-21. The additional ways and means limit provided by the RBI
is just about Rs. 26,000 crore; it may help some States plan the timing of their
borrowing, but will not augment their resources. It would help greatly to ask the
Finance Commission to work out a Covid-19 grant to help States meet the
contingency. In addition, this is the time to enable States to allow a higher borrowing
limit by at least 1% of GDP.
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May 2020 4
Annexure: Select Macro Economic and Sectoral Indicators
Indicators/ Sectors 2017-18
2018-19 Mar-2019 Apr-2019
May-2019
Jun-2019
Jul-2019
Aug-2019
Sep-2019
Oct-2019
Nov-2019
Dec-2019
Jan-2020
Feb-2020
Mar-2020
Apr-2020
Economy
GDP at 2011-12 Prices Y-o-Y in %
7.04 6.12 5.83 - - 5.61 - - 5.09 - - 4.71 - - - -
GVA at 2011-12 Prices Y-o-Y in %
6.59 6.04 5.72 - - 5.39 - - 4.85 - - 4.50 - - - -
Agriculture Y-o-Y in %
5.93 2.41 -0.13 - - 2.83 - - 3.14 - - 3.47 - - - -
Industry Y-o-Y in %
6.82 4.48 3.35 - - 3.21 - - 0.09 - - 0.10 - - - -
Services Y-o-Y in %
6.66 7.52 8.23 - - 6.73 - - 6.82 - - 6.45 - - - -
Banking
Gross Bank Credit Y-o-Y in %
8.37 12.29 12.20 12.95 13.47 11.86 12.12 10.24 8.74 8.93 7.25 6.97 8.50 7.30 7.60 6.70
Bank Credit to Industries Y-o-Y in %
0.73 6.91 6.91 6.95 6.41 6.45 6.12 3.87 2.71 3.36 2.36 1.64 2.48 0.70 1.40 -
Deposit Y-o-Y in %
6.20 10.04 10.04 9.69 11.08 10.37 9.57 9.73 9.38 10.25 9.52 9.66 9.80 9.00 7.90 9.80
Industry
Manufacturing PMI Index
51.00 52.60 52.60 51.80 52.70 52.10 52.50 51.40 51.40 50.60 51.20 52.70 55.30 54.50 51.80 27.50
IIP Y-o-Y in %
5.30 2.70 2.70 3.20 4.50 1.30 4.90 -1.40 -4.60 -6.60 1.80 0.10 2.10 4.50 -16.7 -
Manufacturing Y-o-Y in %
5.70 3.10 3.10 2.50 4.40 0.30 4.80 -1.70 -4.30 -5.70 2.70 -0.70 1.60 3.20 - -
Consumer Durables Y-o-Y in %
0.80 5.50 -3.20 2.20 0.20 -10.20 -2.40 -9.70 -10.50 -18.90 -1.60 -5.40 -3.80 -6.40 - -
Eight Core Sectors Y-o-Y in %
4.28 4.22 5.81 5.16 3.84 1.22 2.64 -0.19 -5.12 -5.49 0.71 2.14 1.43 5.48 -6.50 -
Auto Sales Y-o-Y in %
14.30 5.10 -14.21 -15.93 -8.62 -12.33 -18.67 -23.51 -22.39 -12.73 -12.02 -13.08 -13.83 -19.10 -45.00 -
Passenger vehicles Y-o-Y in %
7.90 2.70 -2.85 -17.00 -20.44 -17.51 -30.96 -31.57 -23.68 0.29 -0.83 -1.21 -6.19 -7.60 -51.10 -
Commercial vehicles Y-o-Y in %
20.00 17.60 0.28 -5.98 -10.02 -12.22 -25.66 -38.71 -39.06 -23.36 -14.98 -12.32 -14.04 -32.90 -88.10 -
Two & three wheelers Y-o-Y in %
15.10 5.00 -16.96 -16.13 -6.70 -11.59 -16.48 -21.71 -21.49 -14.03 -13.64 -15.30 -15.12 -20.20 -40.60 -
Power generation Y-o-Y in %
5.40 3.60 1.07 5.39 5.85 11.12 5.67 -0.25 -3.72 -13.40 -6.80 -1.88 2.43 10.00 -
Steel consumption Y-o-Y in %
7.90 8.80 9.47 10.78 0.49 7.97 8.45 4.52 -4.23 2.90 2.68 1.68 3.55 -6.40 -29.40 -
Cement consumption Y-o-Y in %
6.60 13.90 16.51 2.00 2.50 -1.99 7.83 -5.58 -2.17 -8.07 4.21 5.47 5.00 - -
Domestic passengers carried by airline
Y-o-Y in % 18.00 13.70 0.14 -4.50 2.79 6.18 3.01 3.87 1.18 3.98 11.18 2.56 2.20 9.00 -33.00 -
External Sector
Exports USD Bn
29.32 32.72 32.72 26.03 29.85 25.02 26.23 26.04 26.10 26.48 25.94 27.36 25.97 27.65 21.41 10.36
Imports USD Bn
42.82 43.72 43.72 42.38 46.68 41.03 40.43 39.82 37.64 37.41 38.11 38.61 41.15 37.50 31.16 17.12
Exchange Rate* INR per USD 65.02 69.48 69.17 69.84 69.81 68.92 68.86 71.76 70.69 70.81 71.73 71.27 71.51 72.19 75.39 75.12
Brent Crude Oil* USD per barrel 69.02 67.93 67.93 72.19 66.78 67.52 64.07 61.04 60.99 59.30 64.50 69.26 57.77 56.70 14.85 18.11
Forex Reserves USD Bn
424.36 411.91 411.91 418.52 421.87 427.68 429.65 428.60 433.59 442.58 451.09 457.47 471.30 476.12 475.56 481.08
Inflation
CPI Y-o-Y in %
4.28 2.86 2.86 2.99 3.05 3.18 3.15 3.28 3.99 4.62 5.54 7.35 7.59 6.58 5.84 -
Core Y-o-Y in %
5.22 5.05 5.05 4.56 4.22 4.11 4.28 4.24 3.99 3.46 3.54 3.82 4.16 4.02 4.03 -
WPI Y-o-Y in %
2.74 3.10 3.10 3.24 2.79 2.02 1.17 1.17 0.33 0.00 0.58 2.76 3.52 2.26 1.00 -
Food Y-o-Y in %
0.00 3.59 3.59 4.51 5.47 5.41 4.90 5.90 6.12 7.65 9.09 11.05 10.12 7.31 5.49 -
Interest Rates
Repo* Rate
6.00 6.25 6.25 6.00 6.00 5.75 5.75 5.40 5.40 5.15 5.15 5.15 5.15 5.15 4.40 4.40
10-year Benchmark Average Rate 7.84 7.47 7.47 7.59 7.20 7.05 6.75 6.81 6.97 6.65 6.76 6.89 6.98 6.76 6.80 6.80
10- year AAA Corporate Bond
Average Rate 8.75 8.55 8.55 8.72 8.38 8.30 8.08 7.81 8.02 7.93 7.88 7.90 7.97 7.55 7.60 7.86
5- year Benchmark Average Rate 7.79 7.07 7.07 7.52 7.03 6.95 6.51 6.52 6.64 6.54 6.52 6.77 6.66 6.27 6.20 6.07
5- year AAA Corporate Bond
Average Rate 8.35 8.19 8.19 8.51 7.99 8.10 7.70 7.55 7.59 7.35 7.55 7.35 7.38 7.02 7.30 7.42
MCLR of SBI (1 year) Average Rate 8.15 8.55 8.55 8.50 8.45 8.45 8.40 8.25 8.15 8.05 8.00 7.90 7.90 7.85 7.80 7.40
Call Money Average Rate 5.91 6.21 6.25 6.06 5.90 5.73 5.58 5.37 5.30 5.04 4.95 4.99 4.90 4.93 4.90 4.15
Notes: Data is provisional for the latest months, -: Not available, *: at the end of the period. Source: MOSPI, RBI, eaindustry.nic.in, IHSmarkits.com, SBI, CMIE, FIMMDA, BWR Research
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May 2020 5
MACRO-ECONOMIC INDICATORS
Economy Trends
Quarterly GDP growth rate is likely to decelerate sharply, with a contraction in the
manufacturing and service sectors, due to the COVID-19-related lockdown. Both sectors are
the major drivers for GDP growth and are severely impacted by the lockdown situation, which
is evident from the fall in early indicators such as the PMI index and production fall in eight
core sectors. The expectation of improved agriculture sector output in the current fiscal on the
back of the predicted normal monsoon is the only positive as it has been largely unaffected by
the pandemic and lockdown thus far.
AE: Advance Estimates, Source: MOSPI, BWR Research
Recovery signs witnessed by the industrial sector in the first few months of 2020 were short-
lived as eight core sectors and IIP both reported a record fall in production growth in March,
and the Composite PMI Output Index plunged to its lowest level in April 2020 witnessing
disruption in production and supply.
Source: MOSPI, eaindustry.nic.in, BWR Research
BWR Views
Amid looming concerns over
the spread of coronavirus and
extension of the lockdown in
major parts of the country, we
expect economic activity to
slow down further in the
current fiscal. The revival in
economic activities largely
depends on the government’s
stimulus measures and
resilience of each sector, along
with how all sectors would
manage losses if the current
situation prolongs further.
The production numbers
released by the respective
agencies only give a partial
picture of the negative impact
of the COVID-19 outbreak-led
lockdown. The already
disrupted supply side of the
manufacturing sector may take
huge time to recoup and the
extended lockdown is
expected to curtail demand
further in the coming months.
Although this is an extremely
uncertain situation to make
long-term assessments, we
expect no growth in the GDP
during 2020-21.
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2015-16 2016-17 2017-18 2018-19 2019-20 AE
India's GDP Trends (Y-o-Y growth)
Q1 Q2 Q3 Q4
27.4
3.2
-20.6
4.5
-16.5
-6.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
De
c-1
9
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
Manufacturing PMI and Y-o-Y growth in IIP and Core industries (%)
Manufacturing PMI (Right Axis) Manufacturing in IIP
IIP Eight Core Industries
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May 2020 6
Inflation and Monetary Policy Action
CPI inflation eased to 5.84% in March from 6.58% in February 2020. A slight moderation in
food inflation, in addition to the base effect, coupled with a marginal ease in core inflation
helped inflation ease in March. In view of the limited transactions of products in the market in
the month of April, 2020, the government has been decided to release the price movement of
selective sub-groups/groups of CPI. The available partial data suggests 2.6% increase in food
inflation on a month on month basis in April.
Source: MOSPI, RBI, BWR Research
Crude Oil Prices and INR/USD Rates
Amid the coronavirus scare and consequent contraction of oil demand, in addition to excess
supply, the fall in prices continued, and towards the end of April, the Indian basket of crude oil
fell around USD 19 per barrel in April. On the contrary, the rupee continued to depreciate as
concerns over fiscal constraints and an economic fallout increased amid the looming
uncertainty over the current pandemic situation.
Note: Indian basket of crude oil represents a derived basket consisting of Sour grade (Oman and Dubai
average) and Sweet grade (Brent dated) of crude oil processed in Indian refineries)
Source: Ministry of Petroleum & Natural Gas, FBIL, BWR Research
BWR Views
BWR expects CPI inflation to ease
further and remain below the
MPC’s upper target for some more
months due to muted demand led
by the lockdown situation, in
addition to the sharp fall in crude
oil prices since March. We expect
the inflation to remain within the
range of 4-5% in the first quarter of
2020-21.
Food inflation is also likely to
subside in the coming months.
However, the RBI’s liquidity-
boosting measures may exert
inflationary worries in the long run
if economic recovery takes time to
pick-up. In addition, the recent hike
in excise duty on petrol and diesel
may limit the benefits of easing
crude oil prices to consumers.
BWR Views
The main external risks arising
due to economic disruptions
include volatile oil prices and
currency movements. The crash
in crude oil prices to a historic low
is expected to provide some
much-needed fiscal and
monetary space if it stays at the
current level for long. The
expected contraction in oil
demand due to a global economic
slowdown indicates a lower oil
price outlook.
However, the potential
consequences of the coronavirus
epidemic on the economy and FPI
outflows put pressure on the
rupee. Amid fiscal constraints and
concerns over the slowdown in
economic activities, the rupee
may continue to depreciate in the
coming months. However, with
the RBI’s frequent intervention in
the forex market, we expect the
rupee to stabilise at Rs 75-76 per
USD in the coming months.
6.256.00
5.755.40
5.15
4.40
5.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0F
eb-1
9
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Feb-2
0
Ma
r-20
Annual CPI Inflation and Repo Rate (in %)
Repo Rate CPI Inflation
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May 2020 7
Merchandise Trade
The coronavirus outbreak, which already resonated across economies, began to disrupt global
and domestic trade. After reporting marginal growth in February 2020, both merchandise
exports and imports witnessed a sharp fall in March 2020 and the situation worsened further
in April. Exports and imports both plummeted by 60% each, compared with the corresponding
period a year ago. On a cumulative basis, during 2019-20, compared with exports, the fall in
imports was higher owing to significant decline in the import of gold and oil. Thus, the trade
deficit narrowed by 14% in FY 21 over the previous year.
Source: Ministry of Commerce, BWR Research
Forex Reserves and Import Cover
Foreign exchange reserves crossed $480 billion in end-April 2020, with almost $5.5 billion
added in a single month. The current forex reserves level is adequate to cover 15.3 months of
imports, which gives much-needed comfort to absorb external shocks, such as exchange rate
volatility, at a time of deteriorating economic activities.
Source: Ministry of Commerce, RBI, BWR Research
BWR Views
The initial 21-day lockdown
created production disruptions
and the further extension of
the lockdown in major parts of
the country in addition to spill-
overs of global economic
fallout are likely to burden
both imports and exports for
as long as the current
pandemic situation continues.
However, the sustained fall in
oil prices provides some
respite on the import bill.
BWR Views
To contain exchange rate
volatility, the RBI conducted
forex swap auctions and sold
dollars to arrest the rupee fall
in March. In addition, the RBI
continues to intervene in the
spot and forward markets.
With abundant forex reserves,
the RBI is likely to intervene
frequently in the foreign
exchange market to manage
the rupee at a comfortable
level.
-9758
-34.6
-28.7
-18000
-16000
-14000
-12000
-10000
-8000
-6000
-4000
-2000
0-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Ma
r-20
India's Merchandise Trade Balance (USD mn)
Trade Balance (RHS) Exports (y-o-y in %) Imports (y-o-y in %)
48115.3
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
360
380
400
420
440
460
480
500
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Ma
r-20
Ap
r-20
Forex Reserves and Import Cover
Foreign Exchange Reserves (USD bn) Import Cover in months (RHS)
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May 2020 8
Government Accounts
The CGA postponed the release of monthly government accounts data (revenue and
expenditure) for March due to the extended return filing deadline owing to the ongoing
lockdown in the country. As per data available for April to February 2019-20 period, the fiscal
deficit has crossed the revised Budget Estimates (BE) of Rs 7,668 billion to Rs 10,365 billion.
Through disinvestments, the government has only been able to collect Rs 50,299 crore in 2019-
20, against the revised budget target of Rs 65,000 crore.
Source: Controller General of Accounts, Ministry of Finance, BWR Research
Revenue Collection through GST
The government deferred the release of the GST revenue collection data for April owing to the
extension granted for the return filing deadline on the back of the countrywide lockdown being
imposed. During 2019-20, vis-à-vis 2018-19, the gross GST revenue collection grew by 4.1% to
Rs 1,222 billion, which is marginally higher than the revised budget target of Rs 1,126 lakh
crore. GST collections are likely to fall sharply due to the extended lockdown, creating
significant revenue shortage.
Source: Ministry of Finance, BWR Research
BWR Views
Stalled economic activity may
lead to an acute shortage of
revenue, whereas increased
expenditure through stimulus
measures is likely to keep
government accounts under
pressure.
Given the current uncertain
economic situation, BWR
expects a sharp slippage in the
fiscal deficit target for 2019-20,
which is likely to cross 4.5% of
GDP from the targeted 3.8%.
Further slippage in deficit
target is unavoidable for 2020-
21; hence, the government
recently announced Rs 12 lakh
crore gross borrowing, which is
a 54% more from the budgeted
amount for 2020-21.
-9.0%
-4.0%
1.0%
6.0%
11.0%
16.0%
0
200
400
600
800
1,000
1,200
Ap
ril
Ma
y
Jun
e
July
Au
gust
Se
pte
mber
Octo
ber
Novem
ber
Decem
ber
Jan
uary
Fe
bru
ary
Ma
rch
GST collection (Rs billion)
2018-19 2019-20 Y-o-Y growth (RHS)
19,317
14,289
22,459
26,986 24,654
30,422
7,668
10,365
7,963
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2019-20 RE 2019-20 (Apr-Feb) 2020-21 (BE)
Govt Accounts: Trends in Revenue and Expenditure (Rs Bn)
Total Receipts Total Expenditure Fiscal Deficit
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May 2020 9
SECTORAL INDICATORS
Banking
Banking sector credit witnessed single-digit growth of ~8% in fiscal 2020, compared with 12%
growth in the previous fiscal. The lower offtake was mainly due to a slump in credit growth in
the industry and services sector. Some industries that have witnessed a significant dip in credit
are non-banking financial institutions, infrastructure, chemicals, engineering, construction and
gems & jewellery. Overall credit demand was weak due to a slowdown in economic growth.
Source: RBI, BWR Research
Fiscal 2021 has begun with the economy staring at the COVID-19 crisis. Both the Indian
Government and Reserve Bank of India (RBI) are taking a slew of measures to safeguard the
domestic economy. One such measure includes the RBI announcing a three-month
moratorium on bank loan repayments for the period March-May 2020. As a result, banks have
offered a moratorium to most of their borrowers and extended the loan repayment tenure by
three months to almost a third of private sector banks' borrowers and 50-60% of that of public
sector banks. The government has also announced various liquidity and funding schemes
across various sectors under the Athmanirbhar Package of Rs.20 lakh crore.
Source: RBI, BWR Research
BWR Views
From a banking sector
perspective, while the
government and RBI measures
have brought some liquidity
breather to India Inc., the
extent of the impact of the
COVID-19 pandemic on the
domestic economy is yet to be
ascertained. Banks could face
asset quality pressures, mainly
in the MSME and retail loan
segments, post the
moratorium period. Moreover,
the 10% provisioning
requirement stipulated by the
RBI on loans that are overdue
(0-90 days bucket) and have
been provided a moratorium
could severely pinch banking
sector profitability for fiscals
2020 and 2021. As per BWR
estimates, the RBI’s stipulation
on additional provisioning
requirements could increase
the total provisioning of banks
by ~ Rs.35,000 crore in the
March-June 2020 period. While
the provisioning could be
adjusted against the
provisioning for slippages to
NPAs during fiscal 2021, the
banking sector's ability to
manage asset quality in the
near-term post the
moratorium period remains a
critical monitorable.
Vydianathan Ramaswamy
(Director & Head - Financial
Sector Ratings)
12.3%
7.9%6.9%
17.8%16.4%
7.6%
5.2%
1.4%
8.5%
15.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Overall BankCredit
Agriculture Industry Services Retail loans
Banking - Sectoral Credit Growth
FY 19 FY 20
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Ma
r-20
Banking - Sectoral Credit Growth y-o-y
Agriculture Industry Services Retail loans
www.brickworkratings.com
May 2020 10
Automobiles
Domestic automobile sales were down by 45% y-o-y in March 2020 owing to the lockdown in
the second half of the month. Commercial Vehicle (CV) sales, which were already weak due to
the economic slowdown, were down by 88% y-o-y in March 2020. For the full year 2019-20, the
overall automobile sales were down by 18%, with CV sales falling by nearly 30%. Increased cost
of ownership, revised axle norms, financing issues due to the NBFC crisis, the economic
slowdown and subdued consumer sentiments have contributed towards weak automobile
sales in FY20.
.
Source: CMIE, BWR Research
The pandemic crisis globally, as well as in India, and the resultant lockdown as a containment
measure have caused huge business disruptions domestically and globally. This will have a
considerable negative impact on the automobile industry, which is already battered by low
demand. Additionally, auto makers’ plan to liquidate BS-IV inventory in March has been
hampered, and they will not be able to sell those inventories in the market.
Source: CMIE, BWR Research
BWR Views
Domestic automobile sales are
expected to be muted in April,
and growth will not be
comparable with previous sales
figures due to complete business
closures in April. Furthermore,
an anticipated cut in
discretionary spending by
consumers will likely result in
lower automobile sales in future
as well.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Ma
r-20
Automobile Production and Sales
Auto production (million units) Auto sales & Exports (million units)
-100%
-80%
-60%
-40%
-20%
0%
20%
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Feb-2
0
Ma
r-20
Automobile Sales (Growth y-o-y)
Passenger Vehicles Commercial Vehicles
Two & Three Wheelers Exports
www.brickworkratings.com
May 2020 11
0
50
100
150
200
250
300
350
400
450
Dec-1
8
Jan
-19
Fe
b-1
9
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Wireless Telecom subscribers (in million)
Bharti Airtel Vodafone Idea Reliance Jio BSNL Others
Telecom
During the strenuous times of the ongoing lockdown, the telecom sector has been the central
enabler for all activities by ensuring smooth functioning of their networks, which has in turn,
enabled companies to work from home, educational institutions to provide online classes and
the government to connect with and help those in need. This entire situation has reaffirmed
the fact that the telecom sector, with the current technological advancements, is at the heart
of all activities, and therefore, a healthy and vibrant telecom network is the need of the hour.
The government is expected to take necessary steps to ensure viability of the sector by way of
setting-up floor tariffs (even after the last hike, the tariffs are still low) and providing
relaxations in the AGR matter.
Source: TRAI, BWR Research
As Q4 FY20 was the first full quarter post the tariff hike in December 2019, all telcos are
expected to report better performance. RJio has already declared its results and posted 72%
growth in its profits QoQ, and other telcos are also likely to report growth in their bottom line,
may be not in the same range, but having improved nonetheless.
Power
The power sector's situation has worsened post the lockdown, with demand falling by more
than 30%, that too from the high volume and paying customers (industrial users and railways).
While demand has revived to some extent post lockdown relaxations announced in various
regions, it continues to remain lower than February levels. Discoms are facing challenges on
account of reduced cash flows, and accordingly receivables from the Discoms have been piling
up (~ Rs. 80,000 crore as on 31March 2020)
In the midst of all this, the government has come up with the draft Electricity Amendment Act,
which has received a mixed response from various stakeholders. The draft talks about an
additional authority Electricity Contract Enforcement Authority (ECEA) in addition to the
existing State Electricity Regulatory Commissions (SERCs), to deal with matters related to the
specific performance of contracts.
BWR Views
Relief in terms of AGR dues will
be a key monitorable for the
sector, going forward.
Vipula Sharma
(Director - Ratings)
Aakriti Sharma
(Asst Manager - Ratings)
www.brickworkratings.com
May 2020 12
The attempt to renegotiate renewable power PPAs by the Andhra Pradesh Government is the
backdrop of this proposal, which is expected to alleviate the concerns of the investors, if
implemented. However, there are also chances of this leading to a more complicated
enforcement structure, causing confusion regarding the authority of two different bodies for
the sector. Additionally, various reforms, such as direct benefit transfers to consumers (in
place of current subsidized tariffs), the wider adoption of renewable power,
measures/safeguards to improve investments in the sector and the viability of the Discoms,
are expected to be announced soon.
Source: Central Electricity Authority, BWR Research
Source: Central Electricity Authority, BWR Research
Steel
The COVID-19 pandemic and subsequent nationwide lockdown have affected demand and the
production of steel, as well as resulted in the rise of huge inventory levels. It is very important
for the steel industry that the entire supply chain of the sector should become fully operational
with the availability of raw material and manpower. The operationalisation of all steel-
Vipula Sharma
(Director - Ratings)
Aakriti Sharma
(Asst Manager - Ratings)
BWR Views
Start of the economic activity
and industrial output post
lockdown is critical for power
demand to revive, which in
turn, is imperative for an
improvement in the financial
condition of power plants.
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Fe
b-1
9
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Power Generation (Growth y-o-y)
Thermal Nuclear Hydro Renewables
-1.4%
-0.4%
0% 0% 0%
-0.5%-1.2%
0% 0% 0%
-7.8%
-0.4%
-9.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
Northern Western Southern Eastern North Eastern All India
Power Supply Position - Peak (Surplus/Deficit)
Feb 2019 Feb 2020
www.brickworkratings.com
May 2020 13
consuming industries such as construction and automobiles will also be very critical to revive
the steel sector.
Source: CMIE, BWR Research
China, the biggest consumer of steel is seeing that its economy is slowly on its way back to
capacity, although how long that lasts and whether new demand – both domestic and external
– will surface remains to be seen. However, there are some soft signs that fresh domestic steel
demand was starting to ramp-up in China. However, the longevity of a recovery in the steel
sector now depends on whether there is consistent new demand, both in India and from other
countries.
Airlines
Domestic passengers carried by airlines fell by 33% y-o-y in March 2020 owing to a complete
ban on commercial flights for later part of the month due to the pandemic-led crisis. The airline
sector is estimated to be the worst impacted as it may be witnessing business closure for a
long time. Additionally, companies continue to borne fixed costs such as lease charges and
salaries to staff against nil revenue.
Source: CMIE, BWR Research
Bal Krishna Piparaiya
(Senior Director - Ratings)
Swati Khetan
(Sr. Analyst - Ratings)
43,000
45,000
47,000
49,000
51,000
53,000
55,000
57,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Ma
r-20
Steel Production & Prices
Finished steel production (000 tonnes) Finished steel consumption (000 tonnes)
Finished steel prices (Rs per tonne) (RHS)
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
0
20
40
60
80
100
120
140
Mar-
19
Ap
r-19
Ma
y-
19
Jun
-19
Jul-1
9
Au
g-
19
Se
p-
19
Oct-
19
Nov-
19
Dec-
19
Jan
-20
Fe
b-
20
Ma
r-20
Domestic Passengers Carried by Airlines
Domestic passengers (in lakhs) Growth (y-o-y)
BWR Views
Passenger traffic for airlines is
not expected to see a revival
anytime soon.
BWR Views
Outlook on the steel sector is
negative for the coming few
months with a dip in operating
margins. Government
measures with respect to
logistics, manpower, pricing,
relief on tax and duties, and
relaxation on utility dues,
among others, will play a key
role in ensuring a minimal hit
on the operating margins of
the steel sector.
www.brickworkratings.com
May 2020 14
DEBT MARKET INDICATORS
Movements in Bond Yields
The bond yield (annualised) issued by Public Sector Units (PSUs), corporates and Non-Banking
Finance Companies (NBFCs) maturing in five-, three- and one-year tenures with the
corresponding government securities and Marginal Cost of funds-based Lending Rate (MCLR)
of banks is provided below.
Source: FIMMDA, SBI, HDFC, BWR Research
Source: FIMMDA, SBI, HDFC, BWR Research
BWR Views
We expect yield to continue to
remain volatile depending on
the intensity, longevity and
spread of Covid-19 as it is not
possible to evaluate the impact
of the crisis. However,
opening-up of select business
activities for specific time
bands considering the safety
measures provide some clarity,
going forward.
5.60
6.00
6.40
6.80
7.20
7.60
8.00
8.40
8.80
02-M
ar
05-M
ar
11-M
ar
16-M
ar
19-M
ar
24-M
ar
31-M
ar
08-A
pr
15-A
pr
20-A
pr
23-A
pr
28-A
pr
5-year AAA Corporate Bond yields vs Gsec yield, MCLR
PSU Corp NBFC
GSEC SBI MCLR HDFC MCLR
4.50
4.90
5.30
5.70
6.10
6.50
6.90
7.30
7.70
8.10
8.50
8.90
02-M
ar
05-M
ar
11-M
ar
16-M
ar
19-M
ar
24-M
ar
31-M
ar
08-A
pr
15-A
pr
20-A
pr
23-A
pr
28-A
pr
3-year AAA Corporate Bond yields vs Gsec yield, MCLR
PSU Corp NBFC
GSEC SBI MCLR HDFC MCLR
www.brickworkratings.com
May 2020 15
Yield of AAA-rated corporate bonds maturing in five-, three- and one-year tenures turned
highly volatile as investor confidence has been hit by the current outbreak of the coronavirus
pandemic. The Government of India and RBI have announced various measures enabling
adequate and cheaper working capital and supporting corporates suffering from
business losses and introduced forbearance measures and additional liquidity infusing tools
such as TLTRO.
Source: FIMMDA, SBI, HDFC, BWR Research
Yield curve of AAA PSUs, NBFCs, Corporates and G-sec
The borrowing cost for corporate bonds maturing in one year issued by the government, PSUs,
NBFCs and corporates continued to soften in April by 83-266 bps, against the corresponding
period last year due to a revival in investor sentiment, coupled with several measures taken
by regulators to deepen the corporate bond market.
Source: FIMMDA, BWR Research
3.804.204.605.005.405.806.206.607.007.407.808.208.609.00
02-M
ar
05-M
ar
11-M
ar
16-M
ar
19-M
ar
24-M
ar
31-M
ar
08-A
pr
15-A
pr
20-A
pr
23-A
pr
28-A
pr
1-year AAA Corporate Bond yields vs Gsec yield, MCLR
PSU Corp NBFC
GSEC SBI MCLR HDFC MCLR
7.55
5.83
8.22
6.75
7.727.13
6.53
4.04
6.256.00 6.00
5.75 5.755.40 5.40
5.15 5.15 5.15 5.15 5.154.40
4.404.004.404.805.205.606.006.406.807.207.608.008.408.809.209.60
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
Oct-
19
Nov-1
9
Dec-1
9
Jan
-20
Fe
b-2
0
Mar-
20
Ap
r-20
1-year rolling monthly yield curve for AAA PSU, NBFC, Corporate and GSEC
PSU NBFC Corp GSEC RBI Repo Rate
www.brickworkratings.com
May 2020 16
External Commercial Borrowings
According to RBI data, Indian corporates borrowed around $45 billion from offshore markets
in the form of external commercial borrowings (ECBs) and foreign currency convertible bonds
(FCCBs) between April 2019 and February 2020. The borrowing, in the first eleven months of
FY20, has already exceeded the previous high of $41 billion raised in the whole of FY19.
Source: RBI, BWR Research
Risk aversion in the Indian banking system, tight liquidity in the debt capital market, lower
interest rates abroad and a slew of ECB rationalisation measures taken by the RBI have all
contributed to the spike in overseas borrowings in the last two fiscals.
BWR Views
Going forward, Indian
companies’ borrowing through
ECB may now depend on
whether Indian companies are
in a position to borrow funds,
given the uncertainty due to
the lockdown, thus curtailing
business activities to a large
extent.
39
17
13
47
27
14
21
75
48
27
17
06
14
11 20
66
38
06
24
17
28
12
31
58
35
48
53
99
49
81
33
17
48
89
34
15
21
16
20
97
77
69
41
75
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
External Commercial Borrowings
ECB FY19 ($ mln) ECB FY20 ($mln)
www.brickworkratings.com
May 2020 17
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