Domestic growth to be India Inc's lifeline in 2016: Moody's

However, problems seen from loss in momentum of major reforms

Moody’s on Wednesday said most Indian companies under its rating scanner would benefit from strong domestic growth and accommodative monetary policy in 2016.

However, weak global growth and a possible rate hike by the US Federal Reserve would weigh on businesses in the new year. Also, headwinds from loss of momentum for reforms loom large, Moody’s said in its 2016 outlook for Indian non-financial companies released Wednesday.

“Healthy 7.5 per cent economic 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,” wrote Vikas Halan, vice-president and senior credit officer at the credit rating agency.

Companies were vulnerable to a volatile rupee against the US dollar and to falling prices of commodities globally, which led to a sharp decline in external trade.

Many Indian firms have benefited from the fall in commodity prices as the country was a net importer of raw materials. The resultant moderating inflation should result in lower borrowing costs for companies and yields on corporate bonds. Despite these supportive domestic conditions for corporates, potential headwinds loom from a loss of reform momentum, Moody’s said.

The Narendra Modi-led government has not been able carry out key tax (goods and services tax) and land acquisition reforms, it said. It was highly unlikely that major reforms would be enacted by the Upper House of Parliament. Failure to implement these reforms could hamper investment amid weak global growth, Moody’s warned.

In its sectoral analysis, Moody’s said it expected upstream oil & gas companies to benefit from lower fuel subsidy burdens, though low crude oil and domestic natural gas prices would continue to hurt profitability. Refining and marketing companies should benefit from healthy margins, as demand growth outpaces expected capacity additions.

On the steel sector, Moody’s said a negative outlook reflected elevated leverage and an extended period of low prices due to continuing imports. The negative outlook for metals and mining firms reflected bleak global commodity prices.

Referring to the real estate sector, the rating agency said demand might improve in 2016 on the back of lower interest rates, though approval delays could push back launches.

The auto sector would show six per cent growth in 2016 on the back of sustained growth in passenger vehicle sales and a recovery in commercial vehicle sales.

Telecom companies rated by Moody’s, it said, had reported improving revenue per user and EBITDA margins. However, competition was intense and the regulatory framework was evolving.
POINTS TO PONDER

• Government failed to enact legislations such as GST, land Bill
   
• Govt may not win majority in Rajya Sabha
   
• Investments might not pick up without key reforms, amid weak global growth
   
• Opposition parties may stall key reforms