Rating agency Moody's sees an improvement in the credit profiles of India Inc next year, driven by better sales as it expects GST-related disruptions to wane, leading to an all-over recovery in economic activities.
It can be recalled that for the first time in almost 14 years, over the past weekend, Moody's had upgraded the country's sovereign ratings to Baa2 with a stable outlook. The last rating revision was in 2004.
"We expect GDP growth of around 7.6% will result in higher sales volumes, which, along with new production capacities and benign commodity prices, will support pre-tax growth of 5-6% over the next 12-18 months," Kaustubh Chaubal, vice-president and senior analyst at Moody's said in a report on the 2018 outlook for non-financial Indian corporates.
He said that refinancing needs in 2018 will be manageable for most companies, given their improving access to capital markets and their large cash balances.
"Corporates' cross-border bond maturities will also be manageable for the next three years," Saranga Ranasinghe, assistant vice-president and analyst at Moody's, said.
The agency said a further simplification of GST and other structural reforms, or an improvement in commodity prices, resulting in higher operating profit could further improve companies' credit profiles. That apart an improvement in asset valuations, providing a means of deleveraging for some corporates will also result in improvement in their credit profiles, they said.
But the report said downside risks to its expectation include GDP growth falling below 6% and weakening of commodity prices, resulting in lower pretax growth.
A slowdown in the pace of reforms and higher interest rates brought on by rising inflation, resulting in a tight funding may also impact credit profiles, they warned.