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Economic recovery is expected to gain further traction during the second half of FY22, said India Ratings and Research (Ind-Ra).

Accordingly, the rating agency expects the economic recovery to gain momentum on the back of fading impact of the Covid-19 pandemic along with favourable financing and external demand conditions.

Consequently, it has maintained an "improving outlook" on domestic corporates for the second half of FY22.

"Entities with a strong market share and healthy balance sheet will continue to show strong earnings, although margin may moderate. However, sectors which consume commodities will face challenges in the complete pass-through of input prices," the agency said.

Besides, it said that most sectors would continue to witness a surge in demand post the second Covid wave as they were better prepared than during the first wave.

"The fiscal and monetary measures have backed economic activities by maintaining adequate liquidity. The entities have learnt to make quick structural changes after the first Covid wave and are now better poised to face challenges if subsequent Covid waves appear."

Furthermore, the rating agency expects the 'Production-linked Incentive' (PLI) scheme in specially steel to lead to large capex announcements by both large and small steel companies.

On volatility in commodity prices, it observed that since the second wave, especially during Q2FY22, the risk appetite in the system has reasonably improved.

"This has largely been driven by the strong corporate performance, buoyant external condition and sustained ultra-loose monetary policy conditions. Ind-Ra expects that the financing condition to remain conducive in H2FY22, backed by the easy money conditions," it said.