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Mid-emerging corporates (MECs) sector is expected to see sharper recovery during FY22, ratings agency India Ratings and Research (Ind-Ra) said.

Accordingly, the trend is expected to take place on the back of various cost cutting measures taken by several MECs and the availability of Covid emergency lines, recovery in the essential, non-discretionary and industrial segments.

"Although the agency believes that some of the cutting measures may not be sustainable and there could be some margin correction in FY22, the availability of low-cost Covid emergency lines will help MECs sustain the improvement in credit and liquidity profiles," the agency said.

Notably, Ind-Ra witnessed an increase in the downgrades to upgrades ratio among MECs in 10MFY21 and this trend is expected to improve in FY22, if the leverage profile improves to absorb shocks and continued liquidity support is received.

Besides, the agency believes that the recovery in the discretionary segment would be elongated till 4QFY22, owing to the expected prolonged demand-recovery.

"However, the opening of offices, factories, retail stores and malls backed by the festive and marriage season demand led to the issuers in the other buckets witnessing a steady recovery over October - December 2020 which has been continuing in 4QFY21."

Furthermore, the impact of second wave of the Covid-19 virus and the effectiveness of vaccine remain a key monitorable for the economic recovery.