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Moody's warns of downgrade if growth drops

Last updated on: December 05, 2013 15:48 IST

Moody's warns of downgrade if growth drops

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Reflecting macroeconomic challenges over the next 12 months, Moody's expects challenges for Indian non-financial corporates to continue in 2014.

"India's gross domestic product growth to remain weak at 5.5 per cent in the fiscal year ending March 2015, as elections in mid-2014 will delay reforms needed to revive the economy," Moody's Investors Service said in a report.

Companies will also face higher borrowing costs and tight funding conditions with monetary policy likely to remain tight, it said.

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Image: Women arrange oil lamps and flowers around a Rangoli, made from coloured powders, during Diwali in Ahmedabad.
Photographs: Amit Dave/Reuters

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Moody's warns of downgrade if growth drops

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Moody's could move to a stable outlook if its GDP growth expectations exceed 6 per cent, the rupee stabilises -- such that one-year volatility falls below 5 per cent -- and a development and reform-focused government is formed with a strong majority, it said.

"Heightened expectation of a scale back of quantitative easing by the Federal Reserve in 2014 to keep the Indian Rupee volatile, making the operating environment more challenging for importers and exporters," the agency said in its report.

Indian exploration and production companies are likely to continue their acquisition spree to secure the country's energy needs, it said, adding there was substantial headroom under their current ratings for further buys.

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Image: Indian army recruits stand at attention as they take part in a passing out parade at a garrison in Rangreth on the outskirts of Srinagar.
Photographs: Danish Ismail/Reuters

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Moody's warns of downgrade if growth drops

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A near doubling of gas prices from April 2014 will lift upstream revenues, with Oil and Natural Gas Corporation seeing the largest boost.

However, the fuel subsidy burden on the upstream companies may remain high, despite an expected decline in total fuel subsidies, it said.

Moody's outlook for the sector is stable.          

The outlook is negative in the refining and marketing sector, where it expects refining margins to stay weak and for companies to suffer delays in subsidy reimbursements due to the mid-year elections.

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Image: A Kathakali dancer performs during a cultural programme in Chandigarh.
Photographs: Ajay Verma/Reuters

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Meanwhile, the weaker rupee has improved competitiveness for the IT/business process outsourcing sector, where the sector outlook is stable, it said.

Moody's outlook is negative for the steel, metals and mining sectors, where it expects the weak economy and capacity expansions to weigh on steelmakers' margins and utilisation rates.

It also has a negative outlook for the automotive sector, as it expects demand to remain weak while giving 'stable outlook' for the telecommunications sector, where it expects average revenue per user and EBITDA margins to improve.

 


Image: A man flings a pail of orange coloured water towards a group of women during Huranga at the Dauji temple near Mathura.
Photographs: Vivek Prakash/Reuters

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