The rising vaccination rate, stabilising consumer confidence, low interest rates and higher public spending in India underpin positive credit fundamentals for the country's nonfinancial companies, said Moody’s.
The steady progress on inoculation against the coronavirus in India will support a sustained recovery in economic activity, said Sweta Patodia, a Moody's Analyst.
Consumer demand, spending and manufacturing activity are recovering following the easing of pandemic restrictions, according to Patodia.
“These trends, including high commodity prices, will propel significant growth in rated companies' EBITDA over the next 12-18 months,” she noted.
Moody's projects economic growth will rebound strongly, with GDP growth of 9.3% and 7.9% in fiscal year 2022 — ending on 31 March 2022 — and fiscal 2023, respectively.
Growing government spending on infrastructure will support demand for steel and cement, Moody’s pointed out.
Meanwhile, rising consumption, India's push for domestic manufacturing and benign funding conditions will support new investments, the firm added.
However, if new waves of infections were to occur, it could trigger fresh lockdowns and erode consumer sentiment, the firm predicted.
Such a scenario would dampen economic activity and consumer demand, potentially leading to subdued EBITDA growth of less than 15%-20% for Indian companies over the next 12-18 months, Moody’s said.
In addition, delays in government spending, energy shortages that lower industrial production or softening commodity prices could curtail companies' earnings, Moody’s observed.
India's currently low interest rates will reduce funding costs and support new capital investment as demand grows, according to the credit rating agency.
However, rising inflation may result in a faster-than-expected increase in interest rates, which would weigh on business investment, Moody’s warned.
