Strong demand and rising vaccination rate contribute to positive outlook for Indian businesses: Moody’s

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Delays in government spending, energy shortages that depress industrial production or falling commodity prices could weigh on corporate profits. (To file)

Moody’s Investors Service said Thursday that rising vaccination rates in India, low interest rates and rising government spending are fueling the positive outlook for the corporate sector.

Moody’s predicts India’s economic growth will rebound strongly, with GDP growing 9.3% in the current fiscal year ending March 2022, followed by 7.9% in fiscal 2023.

In a report, Moody’s said credit fundamentals favor Indian businesses on a sustained economic recovery and that rated company profits will rise due to strong consumer demand and high commodity prices.

Rising vaccination rates in India, stabilizing consumer confidence, low interest rates and increasing public spending underpin positive credit fundamentals for non-financial companies, he said. declared.

“India’s continued progress in coronavirus vaccination will support a sustained recovery in economic activity. Consumer demand, spending and manufacturing activity are recovering following the easing of restrictions linked to the pandemic. These trends, including high commodity prices, will propel significant EBITDA growth for rated companies over the next 12-18 months, ”said Moody’s analyst Sweta Patodia.

Increased public spending on infrastructure will support demand for steel and cement. Meanwhile, rising consumption, India’s push for domestic manufacturing and favorable financing conditions will support further investment.

However, if new waves of infections were to occur, it could trigger further lockdowns and erode consumer sentiment. Such a scenario will dampen economic activity and consumer demand, potentially leading to moderate growth in EBITDA (earnings before interest, taxes, depreciation and amortization) of less than 15-20% for Indian companies in the 12 to 12 months. Next 18 months, Moody’s said. .

In addition, delays in government spending, energy shortages that depress industrial production or falling commodity prices could weigh on corporate profits.

“The currently low interest rates in India will reduce financing costs and support new capital investments as demand increases. However, rising inflation could cause interest rates to rise faster than expected, which would weigh on business investment, ”he added.

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