Sluggish economic growth and lacklustre profitability will weaken credit conditions for most non-financial Indian companies in 2020, said rating agency Moody’s.
The credit profiles of rated firms are unlikely to improve significantly over FY21, due to elevated debt levels, weakening profitability and the continued economic slowdown. This puts pressure on both investment and consumption, said Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer.
Following Moody's change in outlook on India's sovereign rating to negative in November, 51 per cent of its 45 rated companies carry a negative outlook.
The conditions will remain stable for the infrastructure sector, supported by strong market positions. This will also be aided by long-term contracts with availability-linked revenue, where they get paid in full regardless of product demand as long as they can deliver the full contracted service, it said.
Moody's expects India's GDP growth to slow to 6.6 per cent in 2020, with limited prospects for government stimulus measures to improve credit conditions in the near term.
Funding conditions also remain tight, slowing demand for consumer goods and leaving banks selective in extending loans to companies.
The continued depreciation of the Indian Rupee against the US dollar meanwhile has limited negative credit implications for rated companies, as most have natural hedges in place.
Overall, refinancing risk for long-term debt maturities remains manageable for most rated companies, although they are reliant on continued annual rollovers of short-term working-capital financing.
Upside factors for Moody's outlook on India's non-financial companies include a ramp up of government's stimulus, better funding and market liquidity conditions whereby domestic demand and consumer funding both get a boost.
Industry outlooks reflect Moody's view of fundamental business conditions for an industry over the next 12-18 months. Since outlooks represent Moody's forward-looking view on business conditions that factor into its ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely on average, it added.