Recovery in the metals sector will help India Inc to have a stable fiscal year 2018-19 with 7-9 per cent revenue growth, but the capex recovery will not be possible for two more years, a report said today.
"The corporate outlook for FY19 will be stable, driven by profitability improvement in FY18, leading to deleveraging," India Ratings said in its report.
However, the rating agency said that the recovery will be limited to the metals sector and "a broader recovery could take much longer".
The agency expects revenues to grow 7-9 per cent and pre-tax profits to grow 8-11 per cent on a pick-up in consumption-led sectors such as automobiles and retail, low base effect and higher realisation in commodity-linked sectors.
The agency said it expects commodity prices to be relatively higher during the fiscal and when coupled with high interest rates and rupee depreciation, can neutralise the profit growth.
However, on the capital expenditure front, it said it is unlikely to revive till fiscal year 2019-20 on a limited growth in the profits and whatever expenditure does happen will be on maintenance, and not expansions.
Generally, private sector capex plays a significantly important role in driving an economy, experts say pointing out to the experience of the boom period of the first decade. In the absence of it, the government can up spending.
However, the agency expects the space for a push from the government to be limited.
"Given the focus on fiscal rectitude, the ability to propel private investment by way of spending by central government is likely to remain limited," it said, adding that policy-oriented reforms will be used by the Centre to drive industrial activity.
The implementation of the goods and services tax has elongated the working capital cycles and there will be a further elongation in FY19 as well, it said.
From a debt servicing capabilities perspective, it pointed out to a sensitivity analysis which said that Rs 1.2 lakh crore of debt can move into stressed category if interest rates are upped by one percentage point.
On the ongoing depreciation in the rupee, it expects exporters to witness 5 per cent and 9 per cent rise in pre-tax profits with depreciation of 5 per cent and 10 per cent, respectively.
Non-stressed corporates would be able to absorb shocks of rupee depreciation and interest rate rise but the stressed corporates would find it difficult to cope up in case of a further rise in the interest rates or a fall in rupee, thereby derailing the overall recovery, it said.
The agency expects a slower 8-9 per cent credit growth by the state-run lenders on high leveraging and lower capacity utilisation across many sectors.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)