Most non-financial corporates would benefit from domestic growth monetary policy.
By Sreekanth A Nair
Moody’s on Wednesday cautioned that loss of momentum of economic reforms in India could hamper investment amid weak global growth.
“The Modi administration so far this year has been unable to enact legislation on key reforms, including unified goods and services tax and the Land Acquisition Bill,” it said.
It seems highly unlikely that the major reforms will get enacted by the upper house of the Indian parliament where the ruling coalition is in minority. A failure to implement these reforms could hamper investment amid weak global growth.
“Healthy 7.5% GDP growth for India for the fiscal year ending March 2017 (FY2017) and a pick-up in manufacturing activity will be broadly supportive of business growth,” said Vikas Halan, a Moody’s Vice President and Senior Credit Officer.
“However, the corporates remain vulnerable to the volatile Indian rupee as against the US dollar and to low commodity prices, which has in turn led to a sharp decline in external trade,” he added.
Halan was speaking on the release of Moody’s 2016 outlook presentation for Indian non-financial corporates.
The report noted that most non-financial corporates it rated in India (Baa3 positive) would benefit from strong domestic growth and accommodative monetary policy although weak global growth and a potential US rate hike would weigh on businesses.
By sector, Moody’s expects upstream oil & gas companies to benefit from lower fuel subsidy burdens. But low crude and domestic natural gas prices are likely to affect profitability.
Refining and marketing companies meanwhile should benefit from healthy margins as demand growth outpaces expected capacity additions.
Moody’s negative outlook for the steel industry reflects elevated leverage and an extended period of low prices due to continuing steel imports while the negative outlook for metals and mining companies reflects bleak global commodity prices.
In the real estate sector, Moody’s expects demand to improve in 2016 on the back of lower interests rates, although approval delays could push back project launches for property developers.
In the auto sector, Moody’s expects retail sales volumes to grow 6% in 2016 on the back of sustained growth in passenger vehicles sales and a recovery in commercial vehicle sales.
The telecom companies that Moody’s rates in India have reported improving revenue per user (ARPU) and EBITDA margins. However, competition remains intense and the regulatory framework continues to evolve.