However, the unabated rise in Covid-19
infections in the unlock phase and localised re-imposition of lockdowns in several states have interrupted this recovery in recent weeks.
"In an otherwise bleak environment, the rural recovery has emerged as a bright spot supported by two healthy crop cycles, the timely onset of monsoons, healthy reservoir levels and expectations of a healthy Kharif output besides government's support measures," said ICRA Vice President Shamsher Dewan.
"The fact that rural and semi-urban India remained relatively insulated from the pandemic has also aided this resilience, although recent cases of penetration of the virus into hinterlands pose some concerns."
As per ICRA's analysis of high-frequency data points available till July, the trend indicates some encouraging cues of a gradual yet uneven recovery across different sectors relative to the trough experienced in April.
Retail sales of passenger vehicles and two-wheelers have touched almost 85 per cent and 60 per cent of pre-Covid levels in July from a situation of no sales in April.
Comparatively, retail tractor sales grew by 35 per cent on a year-on-year basis in July. The decline in petrol and diesel consumption has also narrowed sharply to 14 per cent and 15 per cent respectively in June from 60 per cent and 56 per cent respectively in April.
Select indicators linked to the movement of goods like Fastag volumes and e-way bill generation were also encouraging, reverting to 70 to 75 per cent of pre-Covid levels in June.
However, the recovery in some sectors is likely to be more prolonged, given continuing concerns in underlying demand. The travel and hospitality sector, for example, will face prolonged disruptions from the pandemic, given apprehensions regarding travel.
This is also visible in airline passenger traffic which remained subdued at 20 per cent of pre-Covid levels even in July.
"Overall, Q1 FY21 will be a washout for India Inc
with significant pressure on revenues and earnings, considering that the major part of the quarter was under a lockdown or gradual ramp-up phase," said Dewan.
"With continuing fixed overheads and virtually no revenues, the earnings and margin profile of corporate India is expected to have deteriorated quite sharply during the quarter despite some recovery towards the end."
With gradual recovery expectations during the rest of the fiscal and the current subdued macro-economic environment, pressure on earnings and credit profiles are expected to continue over FY21, added Dewan.
Accordingly, ICRA also has taken rating actions to reflect the severity of the crisis with 491 negative rating actions taken from March 1 to June 30. The sectors directly impacted by the pandemic have faced the brunt of rating actions.