Moody's Investors Service has placed the ratings on Tata Motors on review for a possible downgrade. The review, which will be completed over the next 90 days, is on the Ba3 corporate family rating and Ba3 senior unsecured debt rating,Moody's said in a statement.

The outlook on ratings under review has been revised from negative, Moody's said.

“We expect to conclude the review within 90 days,” based on a review of the impact of Covid-19 on the operations of Tata Motors, including its supply chains; impact on demand in key global markets and government's containment measures including some government support as well as its countermeasures and liquidity profile.

On the rationale for a possible downgrade, Moody's cited the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines, which are creating a severe and extensive credit shocks across many sectors, regions and markets.

“The combined credit effects of these developments are unprecedented. The automotive sector has been one of the sectors most affected by the shocks given its sensitivity to consumer demand and sentiment,” it said.

More specifically, the agency said “the weaknesses in the company's credit profile, including its exposure to final consumer demand for automobiles, have left it vulnerable to shifts in market sentiment, leaving it more vulnerable.”

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

“Today's action reflects the impact on the companies of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered,” Moody's said.

The review for downgrade decision considers that demand for new vehicles will come down meaningfully over the coming months, especially in the EMEA and North American markets. This is likely to extend through the early summer at least, with a reasonable recovery from the low points commencing then. “Our current assumptions are that global demand will shrink by about 14 per cent for all of 2020, and can be down in the range of 30 per cent for the second quarter,” Moody's said.

Accelerating incidence of coronavirus infection across the US and EMEA could lead to even more extended production shutdowns and a much delayed demand recovery for its wholly-owned subsidiary, Jaguar Land Rover.

JLR's British plants are mostly closed, as are units along the broader auto supply chain. This should enable field inventories of unsold units to be somewhat restrained , but also lead to potential disruption even after new production starts, unless OEMs and the supply chain cooperate carefully.

For now, Moody's said “we assume a reasonable pace of demand recovery in the third quarter, however the risk to the downside is considerable and further downside scenarios given the uncertainty on the severity and duration of the pandemic.”

For China and India, Moody's expects auto sales to steadily improve from the first quarter. Nevertheless, these markets also face downside risks in terms of the pace and magnitude of the demand recovery.