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Indian cos to benefit from strong growth, easing interest rates: Moody's

But slowdown of the reforms agenda will impact the investment climate amid muted global growth. The government has failed to get opposition's support to get Goods & services tax and land acquisition bills passed through the Rajya Sabha.

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Last Updated - May 15, 2023
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Most domestic non-financial companies will benefit from strong local demand and an accommodative interest rate regime, although weak global growth and a potential US rate hike will weigh on businesses, said the global rating agency Moody’s in a statement.

“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,” says 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 too low commodity prices, which has, in turn, led to a sharp decline in external trade,” adds Halan.

A lull in commodity prices has benefited many Indian companies given the country’s status as a net import of raw materials and the recent history of high inflation. This will lead to inflation rates moderating further and should result in lower borrowing costs for corporates and yields on corporate bonds, says Moody’s.

But the report warns of potential headwinds owing to the loss of reforms momentum. The government has been unable to enact key reforms such as a unified goods and services tax and the Land Acquisition Bill. There is a slim chance of the proposed bills to get passed through the Rajya Sabha where the ruling BJP government is not in majority. A failure to implement these laws however will hamper the investment climate amid weak global growth. 

By sector, Moody’s expects upstream oil & gas companies to benefit from lower fuel subsidy burdens, although low crude and domestic natural gas prices will continue to hurt 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 interest 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 vehicle 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.

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Jay Vasa is a content writer, who has got his core emphasis on insurance related information. The sole motive of writing articles is to spread appropriate information to the people regarding one of the important and discussed topic in today's time.