The global ratings agency, Moody’s Investors Service in its latest report has said that India’s Gross domestic product (GDP) growth of around 7.6 percent will result in higher sales volumes, which along with new production capacity and benign commodity prices will support an EBITDA (earnings before interest, taxes, depreciation and amortisation) growth of 5-6 percent over next 12 to 18 months. It also expects that growth will rebound strongly in 2018 because the supply chain disruptions of 2017 will end soon. Recently, it had upgraded India's sovereign credit rating by one notch to 'Baa2' with a stable outlook after almost 13 years.
While noting that corporate credit profile will continue to improve on strong earnings growth, supported by solid economic growth and increased production capacity, the rating agency said that consolidation in oil & gas, telecom and steel sectors would affect credit quality in these sectors. However, it also observed that refinancing needs in 2018 would be manageable for most companies given their improving access to capital markets and large cash balances.
As per the report, intense competition, such as among telecommunications companies (telcos) and auto, will result in lower earnings or rising capital spending. It also pointed out that healthy economic growth in the Asian and global economies will support steady earnings growth for Asian corporates, which in turn will improve their financial leverage. Furthermore, it noted that the gradual normalisation of monetary policy will support the near-term liquidity needs of corporates in the region.