Moody's Investor Service said on Thursday that it expects India's economic growth would rebound strongly with GDP expanding 9.3 per cent in the current fiscal and 7.9 per cent in 2023. It stated that the recent spike in India's vaccination rate, lower interest rates and higher public spending drive the positive outlook for the country's corporate sector.
The ratings agency highlighted that credit fundamentals were favourable for Indian companies on the back of a sustained economic recovery. It added that earnings of rated companies' would rise due to stronger customer demand and high commodity prices.
“India's steady progress on inoculation against the coronavirus will support a sustained recovery in economic activity. Consumer demand, spending and manufacturing activity are recovering following the easing of pandemic restrictions. These trends, including high commodity prices, will propel significant growth in rated companies' EBITDA over the next 12-18 months,” Moody's Analyst Sweta Patodia said.
Moody's said that India's rising vaccination rate, stabilizing consumer confidence, low-interest rates and higher public spending underpin positive credit fundamentals for non-financial companies.
"India's currently low-interest rates will reduce funding costs and support new capital investment as demand grows. However, rising inflation may result in a faster-than-expected increase in interest rates, which would weigh on business investment," Moody's said.
It added that increased government spending on infrastructure will support demand for steel and cement. Meanwhile, rising consumption, India's push for domestic manufacturing and benign funding conditions will support new investments.
However, the ratings agency cautioned that if a new wave of infections were to occur, it could trigger fresh lockdowns and erode consumer sentiment. It said that such a scenario would dampen economic activity and consumer demand, potentially leading to subdued EBITDA growth of less than 15-20 per cent for Indian companies in the next 12-18 months. In addition, delays in government spending, energy shortages that lower industrial production or softening commodity prices could curtail companies' earnings.
(With inputs from PTI)