Moody's upgrades India's corporates outlook to stable

Moody's Investors Service has upgraded the outlook for Indian non-financial corporates from negative to stable due to economic recovery and political stability. "We changed the outlook for Indian non-financial corporates to stable from negative, reflecting our view that economic recovery, enhanced access to the global capital markets and successful implementation of pro-market policies will lead to improved corporate cash flows and be broadly supportive of business growth," said Vikas Halan, a Moody's vice-president and senior credit officer.
Improved external vulnerability should also reduce foreign-exchange risk for Indian corporates, despite gradual interest rate normalisation by the US Federal Reserve, Moody's stated. "We expect 5.6% GDP (gross domestic product) growth in India (Baa3 stable) for the fiscal year ending March 2016, led by an acceleration in manufacturing activity," Halan said.
Moody's outlook stated that Indian corporates' key financial metrics would weaken in 2015, but the pace of leverage growth would moderate as corporate earnings continue to improve. Higher equity markets and asset valuations would also support deleveraging.
Moody's changed the outlook on the refining and marketing, steel, metals and mining and automotive sectors to stable from negative to reflect the broad-based improvement in growth prospects for companies in those sectors, despite lingering challenges. Recent energy reforms have also improved overall credit availability for the corporate sector. As a result, Moody's outlook is stable across key industries.
In the exploration and production sector, India's gas price hike would boost the revenues of upstream players, although the fall in crude oil prices would hurt profitability, the agency said.  "Demand for steel will pick up gradually, but we expect production growth to keep its pressure on prices and margins. The broader metals and mining sector continues to be affected by mining bans and regulatory issues," Moody's said.
Demand for new vehicles would also remain weak across most segments in 2015, limiting sales for automotive companies, the agency said. Moody's said it would change the outlook to positive if government measures that unlock GDP growth beyond 7% lead to a broad-based improvement in credit metrics.