Strong demand, rising vaccination rate drive positive outlook for Indian corporates: Moody's
In a report, the rating agency said credit fundamentals are favourable for India's companies on a sustained economic recovery and earnings of rated companies' will rise on strong consumer demand and high commodity prices
New Delhi: Moody's Investors Service on Thursday said India's rising vaccination rate, low interest rates and higher public spending drive the positive outlook for corporate sector.
Moody's projects India's economic growth will rebound strongly, with GDP expanding 9.3 per cent in the current fiscal ending March 2022, followed by 7.9 per cent in fiscal 2023.
In a report, Moody's said credit fundamentals are favorable for India's companies on a sustained economic recovery and earnings of rated companies' will rise on strong consumer demand and high commodity prices.
India's rising vaccination rate, stabilizing consumer confidence, low interest rates and higher public spending underpin positive credit fundamentals for non-financial companies, it said.
India's steady progress on inoculation against the coronavirus will support a sustained recovery in economic activity. Consumer demand, spending and manufacturing activity are recovering following the easing of pandemic restrictions. These trends, including high commodity prices, will propel significant growth in rated companies' EBITDA over the next 12-18 months, Moody's Analyst Sweta Patodia said.
Growing government spending on infrastructure will support demand for steel and cement. Meanwhile, rising consumption, India's push for domestic manufacturing and benign funding conditions will support new investments.
However, if new waves of infections were to occur, it could trigger fresh lockdowns and erode consumer sentiment. Such a scenario will dampen economic activity and consumer demand, potentially leading to subdued EBITDA (earnings before interest, taxes, depreciation, and amortization) growth of less than 15-20 per cent for Indian companies over the next 12-18 months, Moody's said.
In addition, delays in government spending, energy shortages that lower industrial production or softening commodity prices could curtail companies' earnings.
"India's currently low interest rates will reduce funding costs and support new capital investment as demand grows. However, rising inflation may result in a faster-than-expected increase in interest rates, which would weigh on business investment," it added.
The GDP growth in April-June quarter this fiscal stood at 20.1 percent. The Indian economy had contracted by 24.4 percent in April-June last year
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The reasons for quick recovery by the corporate sector in India can be attributed to the fact that debt financing by Indian corporates is not very high as compared to global levels
The NHA estimates are prepared by using an accounting framework based on internationally accepted System of Health Accounts 2011, provided by the WHO