Revival in investment sentiment unlikely this year: Naresh Takkar

Interview with MD & CEO, Icra

Pointing to sharp fall in rupee and slowdown, ICRA chief executive & managing director NareshTakkar warned the weak rupee has added to stress on balance sheets, postponing reversal in credit rating cycle further by few quarters. In an interview with Abhijit Lele, explained that chances of investment revival are bleak in FY14 despite slew of reforms and the better agriculture growth. 

We are through with the first quarter of FY14. What is the outlook on the corporate ratings? How will the effect of sharp dip in rupee value pan out in 2013-14?
The corporate ratings were under pressure and deterioration was elevated for the most part of Fy13. During the fourth quarter (January-March 2013) we saw moderation.  But, there may not be immediate reversal in credit quality cycle. We may be at bottom and may not recover from it for few quarters. 

Rupee has made things worse. The considerable rupee depreciation would boost prices of imported inputs in the near term, which is likely to be partly passed through to prices of manufactured products.

How the big corporate placed to face challenges?
The debt levels for some companies are very high. Though concerns in the power and road sector are getting addressed. The large companies from these sectors remain stressed (under weight of large borrowings).

Are companies’ especially small and mid-size units more vulnerable than before?
Their cash-flows continue to be under strain. The working capital cycle remained stretched. We do not see any substantial change in the trend. It is tough business environment and weak and volatile rupee has added to cost pressures.  

What is the sense on economic growth for the current financial year (2013-14)?
While overall economic activity remains sluggish, the agriculture sector may show better growth over last fiscal. Realistically speaking the scope for improvement is limited. The consumer inflation may not see any respite. (On expectation of mild revival, ICRA in May 2013 had pegged economic growth at 5.8-6.0% for FY14, from around 5.0% in FY13) 

Since second half of last year (FY13), the government has taken slew of steps for reviving economy. Will it give push for reviving investment sentiment?
The government has indeed been active in reforms, removing bottlenecks in project implementation and cut down red tape to facilitate investments. Yet, overall revival in investment sentiment is unlikely to happen in the current financial year.

Would decisions like especially in power sector like revision in tariffs to absorb fuel price hike help to improve infrastructure support and eventually economic growth?
Some announcements are indeed positive for power sector. The renegotiation of contracts to factor in higher cost of imported coal is one such step. People are ready to accept higher cost of power over experiencing outages (power cuts).