India to grow 6.5-7.5% over 12-18 months: Moody's poll

MUMBAI: Market participants in Asia Pacific are believe that India’s gross domestic product ( GDP) growth will range between 6.5% and 7.5% in the next 12 to 18 months despite the short term drag caused by demonetisation, a survey of 220 large investors, intermediaries and bond issuers in India and Singapore by credit rating agency Moody’s and its Indian subsidiary ICRA said.

More than 60% of market participants that Moody's and ICRA surveyed in Mumbai and Singapore believe that India's GDP growth rate will range between 6.5% and 7.5% over the next 12-18 months.

The surveys were conducted during Moody's and ICRA's third annual India credit conference, held in Mumbai on 8 June 2017 and in Singapore on 21 June 2017, 159 market participants from Mumbai and 61 from Singapore took part in the survey.

“Given economic and institutional reforms in India, and further changes that could follow, India will likely grow faster than similarly rated peers over the next 12-18 months, despite a short-term drag caused by demonetization," said Marie Diron, associate managing director at Moody's.

Respondents expect the new goods and services tax (GST) to boost India’s GDP by 50 to 100 basis points in the next two years, though more respondents from Mumbai (76%) compared to just 39% from Singapore expect a boost in GDP. One basis point is 0.01 percentage point.

More number of respondents (29%) in Singapore expect GST to have no impact on growth in India.

Moody's said that India's GDP growth, together with capacity additions and stabilizing commodity prices, will support EBITDA growth of 6%-12% at Indian corporates over the next 12-18 months. The rating agency said that Indian corporates' capital expenditure cycle has peaked, with projects nearing completion. Declining investment will slow the pace of borrowing over the next 12-18 months, the rating agency said.

"Overall, as the positive economic impact of GST materializes, economic growth should gradually accelerate to around 8% over the next three to four years," adds Diron.

More than half of the respondents in both Mumbai and Singapore say that a combination of GDP growth of 7%-7.5%, the commissioning of new production capacity and stabilizing commodity prices will drive EBITDA growth.

Respondents from both India as well as Singapore said that the greatest risk to the asset quality of Indian banks over the next 1-2 years is their exposures to large corporates in the power, steel and infrastructure sectors.

However, Moody's said that the formation of new non-performing loans (NPLs) will be slower than in the past 2-3 years, because of the banks' recognition of a large amount of NPLs.

The rating agency said that over the medium term, GST will contribute to productivity gains and faster GDP growth by making it easier to do business; thereby unifying national markets and enhancing India's attractiveness as a foreign investment destination. It will also help facilitate government revenue generation by improving tax compliance and administration; with both factors positive for India's credit profile, which is constrained by a low revenue base.