Conditions will improve for Indian corporates in 2021, as economic activity gathers pace post-lockdown, Moody's Investors Service said on Wednesday.

In its 2021 outlook for rated Indian non-financial corporates, Moody's cited earnings growth on the back of widespread demand revival across sectors as the reason for giving a 'stable outlook' for Indian corporates in 2021.

"Broad-based demand revival and a low base in 2020 will support strong GDP growth of 10.8 per cent in India in fiscal 2022 ending March 2022, following a decline of around 10.6 per cent in fiscal 2021 -- the country's first contraction in four decades," says Sweta Patodia, a Moody's Analyst.

"These improving business conditions will increase rated issuers' earnings, which we expect to return to pre-pandemic levels by the end of fiscal 2022. A combination of higher earnings and reduced capital spending will support deleveraging over the next 12-18 months."

However, Moody's Investors Service said the overall recovery will remain fragile as new infections continue to grow -- although at a slower rate -- and therefore new lockdowns cannot be ruled out, which would hinder consumer demand and recovery.

Meanwhile, it pointed out that low interest rate environment and widespread credit availability will allow corporates with strong balance sheets to refinance and grow.

"But liquidity will be tight for financially weaker issuers, exacerbating their operating challenges. Specifically, around 39 per cent of the total USD16 billion of debt maturing through 2022 pertains to such financially weaker, speculative-grade issuers," the outlook report said.

At present, Moody's rates 21 Indian corporates across five key sectors: oil and gas, telecommunications, automobile manufacturers and suppliers, steel and mining.