(Bloomberg) — The pandemic and record defaults by Indian companies are making one of the nation’s biggest money managers wary of investing in bonds from local firms.

Nippon Life India Asset Management Ltd., the country’s fifth-biggest mutual fund, won’t invest in rupee corporate notes rated below AA, except where required by the mandate, said Amit Tripathi, chief investment officer for debt at the company. The fund also prefers government debt to AAA rated public sector bonds, joining a chorus of asset managers favoring sovereign issuance over credit risk during the pandemic.

“There is a huge amount of uncertainty out there in terms of the end outcome, both in terms of businesses as well as balance sheets,” Tripathi, 45, said in a phone interview last week. “If the credit isn’t great to be with for three years, then it isn’t for three months either.”

Tripathi is shying away from corporate debt after a credit risk fund managed by him since 2003 was hit by four defaults last year, a first under his oversight. Tripathi says there is no genuine recovery in Indian lender credit appetite yet, and the real impact of the pandemic on businesses and their ability to service debt will only become clear from September when a moratorium on loan payments expires.

Large swathes of Indian businesses have been able to halt repayments on loans since March after policy makers sought to avert a spike in defaults caused by measures to contain the pandemic. As much as two-third of loans at some banks and non-bank lenders are under moratorium.

Tripathi, who manages 903 billion rupees ($12 billion) of debt assets, is far from alone in writing down the value of some investments because of defaults. The Indian mutual fund venture of France’s AXA SA has written off notes of defaulted shadow lender Dewan Housing Finance Corp., whose debt ratings fell from a high of AAA early last year to default in months. Franklin Templeton’s Santosh Kamath in April shut six debt plans, shocking markets.

While Tripathi is still buying some shorter tenor corporate bonds, and sees opportunities in some high-grade structured debt, now is the time to be conservative, according to him.

“We will stick to larger balance sheets, businesses that have more financial flexibilities, companies that have low refinancing risks and where there isn’t an asset-liability mismatch,” Tripathi said.

(Updates with Tripathi’s comment in the last paragraph.)

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