Inflation, tighter money to lower corporate growth, says Fitch

Corporate volume growth in expected to get slower in the year’s second half due to monetary tightening and inflationary pressure, says Fitch, the rating agency. Sectors likely to be affected are automobiles, auto ancillaries and real estate, with construction expected to be impacted over the next 12-18 months. However, the moderation in growth for most credits will remain within Fitch's tolerance zone and this is unlikely to have a rating impact during 2011, it said on Thursday.

The agency has maintained its stable outlook on the Indian corporate sector as at the beginning of the year. Strong domestic demand and continuing inflation and liquidity pressures in 2011, after the economic downturn in 2009 and a sharp recovery in 2010, are reflected in the upgrades and downgrades this year.

 

Fitch has also maintained a negative outlook on cement, shipping and public sector telecom companies in India. There has been no visible slowing in capital expenditure plans for most large companies, despite high interest rates and the risk of lower demand.

In fact, most large companies have been moving away from a policy of liquidity preservation to liquidity deployment (in certain cases by acquiring assets abroad). However, regulatory and political risks could have a significant impact on the overall investment climate.

The continuing uncertainty around euro zone debt and slowing in US growth rates could also potentially change the investment climate over the next nine to 12 months.

Strong domestic demand and continuing inflation and liquidity pressures in 2011, after the economic downturn in 2009 and a sharp recovery in 2010, are reflected in the almost same number of upgrades and downgrades in the first seven months of the year.