Moody’s warns Indian companies of macro challenges ahead

Moody’s expects India to expand only 5.5% in 2014-15, as the general election next year delays economic reforms 

 

 Moody’s says that India’s investment climate and competitiveness indicators are weaker than those of similarly rated countries. Photo: AFP

 

New Delhi: Moody’s Investors Service on Thursday warned that a weak economy, funding challenges, political uncertainties and a scale back of the quantitative easing by the US Federal Reserve will negatively affect Indian companies.

A volatile rupee will also make it much more difficult for importers and exporters to operate, the rating agency said.

“Our outlook for Indian non-financial corporates is negative, reflecting macroeconomic challenges over the next 12 months,” the rating agency said.

Moody’s expects the Indian economy to expand only 5.5% in 2014-15, as the general election next year delays economic reforms that are needed to revive the economy.

Also, with the central bank following a tight money policy to curb inflation, companies will face higher borrowing costs and tight funding conditions, Moody’s said.

Highlighting the risks, Moody’s said companies’ refinancing needs will be large as reliance on short-term funding remains high and higher borrowing costs will affect corporate cash flows. Companies with higher foreign borrowings may see an upward revaluation in debt courtesy a weak rupee. Also, uncertainty associated with election results will reduce investments in new infrastructure.

Sectors which face a negative outlook include steel, metals and mining, automobile, and oil refining and marketing. Sectors which have been given a stable outlook include telecommunications, information technology and business process outsourcing, and exploration and production companies.

Moody’s said that the outcome of the next general election could impact India’s growth depending on the impact on policies and sentiments.

“Moody’s expects a slow economic recovery in the second half of 2014, if global growth increases while domestic inflation.

NITESH  KUMAR 

PGDM 1ST

SOURCE--  LIVEMINT.COM