New Delhi: Despite the BSE benchmark index Sensex hitting its lifetime high of 30,000, corporate earnings growth are expected to continue to be muted in FY2015-16, according to India Ratings.
The slowdown, however the agency feels, could be checked to an extent due to the proposed government spending.
“Capital spending, according to FY16 budget estimates, is likely to boost aggregate corporate earnings with a lag of three-to-six months post the actual spending of the amount. However, other key drivers of corporate profitability namely investment, household consumption and corporate dividend or spending are unlikely to boost corporate earnings,” said the agency.
It said that the other factors having a moderating influence on aggregate corporate revenue and earnings growth are the disinflationary trend of moderating nominal GDP, reduction, and in some cases, reversal of accurals by corporates and a marginal uptick in taxes in FY16.
As such, in line with India’s expectation corporate earnings have not improved in FY15. “Till date in FY15, the Sensex earnings have fallen eight per cent and broad market earnings by 1per cent,” said India Ratings.
While corporate credit metrics have tentatively bottomed out since H2FY14, their recovery is likely to remain protracted. “As such, there is no immediate economic trigger or Union Budget 2015-16’s proposal which will cause a turnaround of stressed or vulnerable corporates. One-in-three of the 500 largest corporate borrower companies do not have enough margins to support even its interest payment,” said the rating agency.
It noted that the calibrated withdrawal of regulatory forbearance for banks will pick up pace from April 1, 2015. “The situation could persuade banks to take a decisive call on the weak corporates that need to be restructured, considering the timeline of 31 March 2014,” added the rating agency.
Meanwhile, Indian co-mpanies have raised nearly Rs 42,000 crore in February, through private placement of corporate debt securities or bonds. This is double the amount that India Inc raised in February 2014.
