Retaining a negative outlook for the mid and emerging corporates, India Ratings on Friday projected a near 16 percent fall in revenue in 2020-21 due to the persisting liquidity and macroeconomic headwinds and sees a recovery only in the second half of the next fiscal year. In its previous forecast in May, the agency had forecast a 6.02 percent fall in aggregate revenue. But the still continuing lockdowns and the resultant disruption to business have upended the fortunes of all businesses.

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We maintain a negative outlook on our mid & emerging corporates portfolio for the second half of the current fiscal due to the persisting liquidity and macroeconomic headwinds caused by the pandemic to businesses. We expect the aggregate revenue to decline 15.9 percent in FY21 as against 6.02 percent we projected in May, the agency said in a report.

The agency saw a decline in the upgrades to downgrades ratio among mid and small companies in the first half, which is seen persisting in the second half due to the continuing liquidity headwinds. But the ratio may improve in 2021-22, subject to the effective and timely implementation of the loan restructuring scheme. The report by India Ratings forecasts a full revenue recovery and capacity utilisations only after the second half of the next fiscal year. Recovery in margins would be stoked by a government stimulus to ramp up demand, the ability of issuers to pass on fluctuations in input costs to their suppliers, and recovery of supply-side issues, it said, adding the operating margins may fall to 8.93 percent in this fiscal year.

Around 50 percent of the companies are based in those states which have a high number of pandemic infections and therefore the sectoral recovery depends on the nature and duration of the lockdowns.