26% domestic companies carry positive credit outlook: Moody's

MUMBAI: India's sovereign ratings upgrade may have to wait a bit longer, but corporates in the non-financial, infrastructure have a reason to smile. The next 12 to 8 months will see an improvement in the ratings of companies, especially those related to government actions, as cash flow improves, according to ratings firm Moody’s.

“Pro-growth policy agenda should benefit most industries over time” said Philipp Lotter, Moody's Managing Director for the Corporate Finance Group at a seminar in Mumbai. “Diesel price deregulation, lifting of iron ore mining ban, and coal mines special provisions and mines & minerals development and regulation Bills will benefit refining, metals, steel and power companies” he said

Besides, commodity price weakness should translate into lower operating costs and improved margins for most, but will weigh on those with oil revenue exposure. Lower energy prices will benefit sectors such as automotives, manufacturing, infrastructure and power, all of which have experienced significant margin pressure in recent years, Lotter said in a presentation.

Moody’s said that the current subdued growth conditions reflect both global and domestic factors which include weak domestic credit conditions, tepid demand and uncertain global growth. It also said that it would take at least two or three quarters for investments to revive. Besides, (expected weak) monsoon and the potential for global financial volatility add risks to growth

In the banking sector, asset quality of Indian banks is expected to improve only over the medium term. “ The improvement in the asset quality of Indian public sector banks for FY’15 was marginal and much weaker than we had expected at the start of the same year ” said Srikanth Vadlamani, a Moody’s Vice President. “A longer time frame is needed for the credit profiles of public sector banks to improve, because their asset quality is tied to the skow multi year recovery of corporate balance sheets and the lagging recognition of associated credit costs.” He said. While asset sales and fresh capital raising activities increased in Fy’15, these developments have not meaningfully lowered debt levels among Indian corporates.