A gradual recovery in India’s corporate sector is expected by Moody’s Investors Service and its Indian affiliate, ICRA Limited, and goes hand in hand with the country’s sustained economic growth. Nonfinancial corporates have a stable outlook from Moody’s for the next 12 to 18 months.
“Almost 23% of all nonfinancial corporates that Moody’s rates in India carry positive outlooks and 53% carry stable outlooks,” said Kaustubh Chaubal, vice president and senior analyst in Moody’s Corporate Finance Group.
In a recent release, Moody’s said that negative rating actions have bottomed out, though recent downgrades exceed upgrades. A total of 23% of the rated portfolio has a negative bias, down from 34% in June 2016. EBITDA growth of from 6% to 12% for corporates over the next 12 to 18 months will be supported by capacity additions and stabilizing commodity prices, as well as GDP growth forecasts of 7.5% for fiscal year 2017 and 7.7% for fiscal year 2018.
With better access to capital markets and large cash balances, most corporates are able to handle their refinancing needs this year, Moody’s said. Also, the capital expenditure cycle for Indian corporates has peaked, with projects nearing completion and declining investments putting the brakes on borrowing.
Expansion in earnings is expected for the metals and mining sector due to stabilizing commodity prices, as well as completion of capital expenditure and the resulting increase in production capacity. Stressed assets in the sector could lead to debt-financed acquisitions, which will weigh on ratings, Moody’s cautioned.
The stable outlook for the power sector reflects improvement in domestic coal production, which moderates the fuel supply risk. The ratings agency’s outlook for the auto industry is stable, due to improving customer sentiment, new product launches and dropping prices. The telecommunications industry maintains a negative outlook, as earnings may come under pressure from an increase in competition.
– Adam Fusco, associate editor