India Sector report
Sectors @ a glance
Industry performance outlook
Construction/ Const. Materials
The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.
Remains Fair In H1 of 2020, the sector was impacted by lockdown measures to some extent (e.g. labour, agriculture sales and purchase of fertiliser were affected by transport and supply chain issues and restriction of movement). With the gradual relaxation of lockdown measures, business activities returned to normal again in H2. The sector also benefited from a normal monsoon season. Agriculture value added growth is expected to have increased 2% in 2020.
Up from Poor to Fair After a subdued performance in 2019, the automotive sector suffered from further deteriorating sales for passenger cars and commercial vehicles in H1 of 2020. Besides the sales downturn, several auto manufacturer plants remained closed during the lockdown in H1 of 2020. However, with the relaxation of the lockdown, production started to rebound. Personal vehicle sales continued their growth momentum for the fourth straight month in November, spurred by festival demand and increased preference for personal mobility during the pandemic. However, commercial vehicle sales could take longer to recover than expected, contingent the pace of economic recovery in 2021. Automotive value added is forecast to grow 32% in 2021 after a 41% slump in 2020.
Remains Fair Deteriorating domestic and global demand have had a negative impact on chemicals performance. Many chemical businesses are suffering from the subdued demand from key buyer sectors, and sector value added growth is forecast to have shrunk by 9% in 2020, followed by a 14% rebound in 2021.
The short-term outlook for pharmaceuticals is still benign, as demand has increased due to higher health expenses. In early 2020, production was impacted by supply chain disruptions from China, and the subsequent lack of commodities has led to lower production. Pharmaceuticals value added is expected to increase 10% in 2021 after a decrease of about 3% in 2020.
Remains Poor Construction value added is expected to have decreased 11% in 2020. Construction activity was severely disrupted across the country in H1 of 2020. While activity gradually resumed in H2, the industry performance is expected to remain subdued in the coming months. The public construction sector (which accounts for most investments in the infrastructure segment, including electricity, water and sewage utilities) is constrained by a widening fiscal deficit due to lower revenues and higher social expenditure during the pandemic. Private construction investment in hotels, restaurants, malls, theatres and cinema halls, offices, and educational buildings is likely to suffer in the short-term, as these sectors have been heavily affected by the pandemic. With gradual revival of the economy and more government infrastructure spending, the rebound could gain momentum in H2 of 2021.
Up from Poor to Fair Private consumption of non-food consumer goods has deteriorated due to the coronavirus impact, with many businesses temporarily closed due to the lockdown. While sales deteriorated between April and June 2020, there has been a gradual recovery since July due to pent-up demand and festive sales. The rebound is set to continue in the coming months. After a 6.5% contraction in 2020, retail sales are expected to increase by more than 12% in 2020.
Remains Poor Over the past couple of years, ICT key drivers were robust economic growth, growing disposable income and penetration into rural markets. However, ICT sales deteriorated due to the temporary closure of businesses during the lockdown measures, and payment delays in the ICT sector have increased, especially in the project-related supplies segment. That said, some ICT businesses have benefited, as demand for laptops and IT products saw some growth, as working from home and home schooling increased. Increased penetration, especially through online sales in Tier I-III cities, as well as new launches (e.g. in the mobile segment), will continue to drive growth in the near term.
Remains Fair The Indian banking sector (especially the public sector bank segment) remains under stress, with a high level of non-performing assets, which has resulted in tightening of lending conditions and of due diligence processes. However, a government recapitalization programme, which includes consolidation of banks, is ongoing to support the sector. Additionally, the Insolvency and Bankruptcy Code from 2016 has helped to improve corporate repayment discipline to some extent.
Remains Good The sector has been impacted by the consequences of the lockdown (e.g. transport and supply chain issues) in H1 of 2020. Value added is forecast to increase by more than 15% in 2021, driven by robust consumer demand.
Remains Poor The business outlook has deteriorated, as orders on hand and production have decreased due to postponed investments. Domestic and international demand from key buyer sectors like automotive and construction have deteriorated. Engineering value added is expected to have contracted 36% in 2020. With the economic rebound forecast for 2021, the sector is likely to benefit. However, its recovery is expected to be slow and gradual.
Remains Poor Even before the coronavirus outbreak, the industry already suffered from fierce competition and lower demand. Many Indian metals businesses are highly leveraged and heavily dependant on bank financing for their working capital requirements. However, banks have been unwilling to provide credit to the industry, which has caused additional liquidity issues for many businesses. Metals value added is expected to have contracted 14% in 2020. With the economic rebound forecast for 2021, the sector is likely to benefit. However, its recovery is expected to be slow and gradual.
Remains Poor Paper producers have been affected by less demand due to the lockdown measures implemented in H1 of 2020, lower economic growth and the ongoing digitalization. The sector is impacted by fierce competition and working capital pressure for many businesses. Value added of the industry is expected to have contracted by more 29% in 2020, with just a 15% rebound forecast for 2021.
Remains Poor Due to the comprehensive lockdown measures in early 2020 and the ongoing coronavirus pandemic, many segments have suffered heavily, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. Hotel and catering value added is expected to have contracted 8.5% in 2020. In the affected segments, payment delays have increased. While there has been a gradual resumption of activities in this sector, the recovery is expected to be slow in H1 of 2021.
Remains Poor Many Indian steel businesses are highly leveraged and heavily dependant on bank financing for their working capital requirements. However, banks have been unwilling to provide credit to the industry, which has caused additional liquidity issues for many businesses. Due to subdued economic growth in 2020, steel value added is expected to have decreased by more than 14% in 2020. However, a rebound has been ongoing since H2 of 2020, due to increased demand from key buyer sectors, such as automotive.
Remains Poor In early 2020, textile producers were negatively affected by supply chain disruptions due to the coronavirus-related lockdowns. At the same time, the performance of wholesalers and retailers deteriorated due to low sales. Domestic and export sales are expected to remain subdued in the coming months. While payment delays have increased over the past couple of months, they have stabilized on an elevated level in Q4 of 2020.