New Delhi: Rating agency Moody's on May 11 said credit conditions are likely to improve for rated Indian corporates over the next 12-18 months on the back of upturn in economic activities, government's reform push and transmission of monetary easing. In a report, the global agency said that over the next 12 to 18 months, credit conditions are likely to improve for rated Indian corporates and infrastructure debt issuers in a number of pro-cyclical industries, such as industrials, transport infrastructure, metals and automotives.
"These industries stand to benefit from an upturn in economic growth, gradual transmission of monetary easing, weaker commodity prices and the government's pro-growth policy agenda," it said. However, the picture is less sanguine for rated entities in the upstream oil and gas, and chemicals sectors, as weak oil prices globally will weigh on earnings and cash flows. Moody's further said that monetary easing will be broadly credit positive, but limited in scope.
"Monetary easing will reduce borrowing costs for companies and also stimulate consumer demand for domestic focused industries, although banks are unlikely to fully pass on policy rate cuts to borrowers," it said. It further said that banks will also likely maintain a more conservative approach to fresh lending in sectors where asset quality remains a risk. The Reserve Bank has reduced the key lending rate (repo) by 50 basis points in two tranches since January.
Moody's also said that the government's ability to push through the land acquisition bill and a unified goods and services tax will be crucial in maintaining positive policy momentum. Meanwhile, it said that several industries will continue to wrestle with structural challenges, even as cyclical conditions stabilise or improve. Such challenges include oversupply in the real estate market and weak finances amongst state electricity boards.
The agency also said that weak commodity prices will benefit many sectors, but undermine those with oil exposure. The retrenchment in global commodity prices should translate into lower operating costs for sectors such as automotives, manufacturing, infrastructure and power. The report also said that recent policy changes are slowly taking effect.
The government's recent policy agenda - including diesel price deregulation, lifting of the iron ore mining ban, the Coal Mines Special Provisions Bill and the Mines and Minerals Development and Regulation Bill - will benefit refining, metals, steel and power companies, it said. "Other sectors are yet to see a specific boost from government policy under the Modi administration, but are likely to benefit from the government's pro-growth agenda," Moody's added.
