New Delhi: As the Russia-Ukraine war shows no sign of abating even after nearly two weeks of fighting, the adverse economic impact of the war is becoming clearer by the day as new sanctions and their after-effects have been coming to the fore. One of the war’s impacts is on the credit rating of nations and companies as no one will be completely touched by this first full-scale war in Europe after the second world war.
While sovereign rating agencies like Fitch and Moody’s have downgraded Russia’s ratings to ‘junk’, the impact of war will be also felt on India’s sovereign rating and the rating of Indian companies as the war will have serious economic consequences for the country, including rising inflation and current account deficits.
Pharma sector has exposure to former Soviet countries
According to a report prepared by India Ratings and Research, a Fitch company, there will be a direct but manageable credit impact on pharmaceutical companies and also on the companies that are active in sectors that receive subsidies from the government such as fertilizer companies.
According to the report, the impact of Russia-Ukraine war on the credit rating of Indian companies will be mostly felt in these two sectors as Indian pharmaceutical companies have meaningful exports to the countries in the Commonwealth of Independent States which comprises former Soviet Union states.
Prolonged war can impact profitability of Indian firms
The rating impact will be felt as in addition to the Russia-Ukraine war there is ongoing pressure on the prices of generic drugs in the US which could impact the profitability of some Indian companies. The agency believes that the risk to the credit rating of Indian companies will be minimal and it would be largely restricted to small entities and those at the lower end of the credit spectrum.
“The impact will be more pronounced in a few sectors and given the relatively small exposure, it would remain manageable from a credit point of view. The agency is reviewing its portfolio of entities and will take commensurate rating actions wherever appropriate,” India Ratings said in a statement sent to ETV Bharat.
The agency, however, clarified that though the risk is expected to be low due to low leverage on their balance sheets, there could be an increased risk in the event of a prolonged disruption that could impact credits. International defence and strategic experts are still clueless about how long the war between Russia and Ukraine will actually last and how exactly it could end.
A protracted conflict lasting for months and continued occupation of Ukrainian territories by the Russian forces coupled with the sanctions imposed by the Western countries and ensuing supply disruptions could have a long-lasting adverse economic impact on both the countries and other economies that have trade relations with them, said the experts.
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