Investment levels in India showing nascent signs of recovery: Moody's

Revival in private-sector capex will be key as the government's ability to expand expand public sector-led investment is limited, Moody's said

Rating agency Moody’s today said that investment levels in India are showing nascent signs of recovery, driven by an upturn in the capital replacement cycle, and increased public sector expenditure.
 
Recent high-frequency data show that India's investment cycle is starting to pick up. However, a revival in private-sector capital expenditure will be key to sustain the recovery as weak fiscal position limits government’s ability to further expand public sector-led investment, said Rahul Ghosh, vice president and senior research analyst at Moody’s.
 
A broad-based and sustainable revival in the private sector capital expenditure cycle will likely take longer to materialise due to high debt levels in the non-financial corporate sector, asset quality concerns in the banking sector, and subdued external demand, the ratings agency said in its latest edition of ‘Inside India’, a quarterly publication that looks at major credit trends in India, released Tuesday.

 

On the 2016 outlook for non-financial companies, Moody's says strong domestic growth in India will offset global headwinds. In particular, healthy 7.5% domestic GDP growth for the fiscal year ending March 2017 and a pick-up in manufacturing activity will be broadly supportive of business growth for India's non-financial corporates in 2016.
 
But corporates remain vulnerable to volatility in the Indian rupee against the US dollar.
 
Also, lower commodity prices have benefited many Indian companies given the country's status as a net importer of raw materials, and its recent history of high inflation. The resultant moderating pace of inflation should result in lower borrowing costs for corporates and lower yields on corporate bonds.

 
Despite these overall supportive domestic conditions for the country's corporates, potential headwinds loom from a loss of reform momentum.
 
The Modi administration has not enacted legislation on key reforms so far this year, including unified goods and services tax (GST), and the Land Acquisition Bill, it said.