February 2022


From Chief Ratings Officer’s Desk


As expected, the final MPC meeting for FY2022 has kept the policy rates and stance unchanged. However, there are several observations – the MPC has forecast the real GDP growth to moderate to 7.8% in FY2023, from the 9.2% projected by the NSO for FY2022. The inflation projections are benign, at 4.5% for FY2023 (5.3% in FY2022), reverting close to 4%, i.e. the mid-point of the MPC’s inflation target range, in H2 FY2023 from a base-effect led peak in the ongoing quarter. Moreover, inflation is seen more due to supply-side factors rather than demand-pull pressures. Given the tone of the policy document, no stance change is expected in the April 2022 review. However, we do expect policy normalisation to commence from June 2022 onwards.

We also examine the long-term outlook for non-banking financial companies-microfinance institutions (NBFC MFIs) which is likely to remain robust, driven by the growth in disbursements in Q3 FY2022 (post revival in Q2 FY2022) - supported by healthy demand, increased economic activity and more vaccination coverage. The second wave of the pandemic had hit the industry hard in Q1 FY2022 in terms of the AUM, collection efficiencies and delinquencies. Small finance banks also grappled with a similar situation in FY2021 and H1 FY2022. However, the FY2022 growth outlook for the AUM has been revised to 12-14% and 18-22% in FY2023, though downside risks due to the new wave remain. On the liquidity front, entities are comfortable on the back of funding support and higher collections in Q2 FY2022, besides regulatory measures by the RBI & the GoI. Profitability in FY2022 is expected to be subdued and is likely to improve in FY2023.

The GoI has formulated policy measures to boost the hydro power segment capacity which has hitherto remained rather subdued. The segment remains systemically important from the grid perspective. Incremental hydro power capacity requirement till 2030 is estimated to remain significant i.e. at about 18 GW, which corresponds to about 39% increase over the existing installed hydro power capacity in the country. However, timely notification of HPO norms by states remain a key monitorable. There are, however, other challenges as well, including pending tariff rationalisation measures.

Lastly, we examine the tough times faced by multiplex owners following the third wave of Covid-19 pandemic and related restrictions. Consequently, occupancies and revenues will be impacted in Q4 FY2022. Various sources of revenues like F&B, and advertising will remain low. With the current evolving situation, the recovery for the sector is likely to be further delayed to Q1 FY2023. The industry has a negative outlook, given multiple headwinds.

The issue concludes with the regular features: monthly rating updates, upcoming ICRA events, and news features related to the company.

I hope you will find this newsletter useful and interesting.

Best Regards

K. Ravichandran
Chief Ratings Officer, ICRA Ltd.

Sainath Chandrasekaran

Assistant Vice President, ICRA

Views on Real Estate Non-Bank Financiers

Vikram V

Vice President & Sector Head, ICRA

Views on Domestic Solar OEMs

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Aditi Nayar

Chief Economist, ICRA

Dovish policy implies low likelihood of April 2022 stance change, despite elevated CPI inflation

The Monetary Policy Committee’s (MPC’s) final policy meeting for FY2023 kept the policy rates and stance unchanged, as we had expected. However, several interesting things stood out in the MPC’s commentary and outlook. First, the MPC’s growth outlook was subdued. It expects real GDP growth to moderate to 7.8% in FY2023 from the base-effect led surge of 9.2% projected by the NSO. While the MPC took a positive view of the Union Budget FY2023, highlighting that enhanced capex is expected to augment growth, its H2 FY2023 growth projection is quite modest at 4.3-4.5%. This implies that the MPC is expecting growth to remain rather weak beyond the base-effect led surge in H1 FY2023.

Further, these projections are subject to downside risks emanating from global financial market volatility, elevated international commodity prices and continuing global supply-side disruptions.

Sachin Sachdeva

Vice President & Sector Head, ICRA

MFIs’ portfolio growth and profitability to revive in FY2023; impact of third wave remains monitorable

ICRA Ratings expects the long-term outlook for non-banking financial companies-microfinance institutions (NBFCMFIs) to remain robust, driven by the fact that the growth in disbursements is expected to have continued in Q3 FY2022, post revival in Q2 FY2022. The same is likely to be continued going forward, supported by healthy demand in the industry, increasing level of economic activity; and increasing vaccination in the country. The second wave of the pandemic had hit the industry in Q1 FY2022 and impacted the recovery that was happening post the first wave of the Covid-19 pandemic. Disbursements declined significantly and the growth plunged in Q1 FY2022. Disbursements picked up again in Q2 FY2022, pushing up the growth in the assets under management (AUM) of NBFC-MFIs to around 5% (annualised) in H1 FY2022.

Jay Sheth

Vice President & Sector Head, ICRA

Third wave dashes imminent recovery for multiplex operators; sector rebound hopes pushed to Q1 FY2023

Multiplex owners are once again facing a tough time due to the emergence of third wave of Covid-19 pandemic. As per ICRA, while November 2021 to March 2022 was expected to witness a strong rebound, given the strong content pipeline, which was also reflected in the box office performance of major movies released in Q3 FY2022. However, the restrictions imposed by various state governments on multiplex operations due to the third wave has dashed imminent recovery for the industry. With malls and cinema halls closed temporarily in Delhi and Haryana, allowing only double vaccinated consumers in a few states such as Kerala/Karnataka and night curfews in many regions, most of the movie releases were deferred.

Girishkumar Kadam

Senior Vice President & Co-Group Head, ICRA

Incremental hydro capacity requirement estimated at 18 GW, to meet the HPO norms by 2030, however execution challenges with cost over-run risk remain significant

Hydro capacity addition in India has remained sluggish historically, with the significant execution challenges as also seen in the incremental capacity addition of about 22 GW between 2000 and 2021, representing CAGR growth of mere 3% in the hydro segment. Further, the share of hydro in the overall power generation capacity has declined considerably over the period, with a significant rise in thermal capacity addition seen in CY2005 till CY2015 and thereafter in the renewable energy segment.

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