Credit conditions will weaken for most Indian non-financial companies in 2020, driven by sluggish economic growth and slowing earnings, but that infrastructure issuers' credit quality will remain stable, Moody's Investors Service said recently in a new report.
"Rated companies' credit profiles are unlikely to improve significantly over 2020-2021, due to elevated debt levels, weakening profitability and the continued economic slowdown, which is pressuring both investment and consumption," said Kaustubh Chaubal, a Moody's VP and senior credit officer.
"However, conditions will remain stable for the infrastructure sector, supported by strong market positions and long-term contracts with availability-linked revenue, where they get paid in full regardless of product demand as long as they can deliver the full contracted service," said Abhishek Tyagi, a Vice President and Senior Analyst.
Weaker GDP growth in 2020
Moody's expects GDP growth in India to slow to 6.6% in 2020, weaker than in previous years, with limited prospects for government stimulus measures to improve credit conditions in the near term.
Funding conditions also remain tight, slowing demand for consumer goods and leaving banks selective in extending loans to companies, the rating agency noted.
The continued depreciation of the Indian Rupee against the US dollar meanwhile has limited negative credit implications for rated companies, as most have natural hedges in place, the firm added.
Overall, refinancing risk for long-term debt maturities remains manageable for most rated companies, although they are reliant on continued annual rollovers of short-term working-capital financing, Moody’s pointed out.
Upside factors for Moody's outlook on India's non-financial companies include a ramp up of government's stimulus measures aimed at reviving consumption demand, and better funding and market liquidity conditions whereby domestic demand and consumer funding both get a boost.
Following Moody's change in outlook on India's sovereign rating to negative in November, 51% of its 45 rated companies carry a negative outlook, the rating agency said.