Global ratings agency Moody's Investors Service has said that investment levels in India (Baa3 positive) are showing nascent signs of recovery, driven by an upturn in the capital replacement cycle, and increased public sector expenditure.
The agency in its latest edition of Inside India, a quarterly publication, has however said that a revival in private sector capital expenditure will be required to sustain the recovery in investment activity, because India's weak fiscal position will limit the ability of the government to further expand public sector-led investment.
Moody's further said that lower commodity prices have benefited many Indian corporates, given the country's status as a net importer of raw materials, and its recent history of high inflation. The resultant moderating pace of inflation should result in lower borrowing costs for corporates and lower yields on corporate bonds.
It said that the government's focused investment in power and transport sectors has also helped. The extent to which this spending is effectively implemented could also spur private investment, leading to a marked acceleration in planned capital expenditure. But despite these overall supportive domestic conditions for the country's corporates, potential headwinds loom from a loss of reform momentum. Moody's also pointed out that the Modi administration has not enacted legislation on key reforms so far this year, including a unified goods and services tax, and the Land Acquisition Bill.