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Business News/ Companies / Indian companies well placed for an improvement: Moody’s
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Indian companies well placed for an improvement: Moody’s

The recovery is also likely to improve the credit ratings of these companies in the next few months, according to Moody's

Moody’s said that the recent policy changes by the government allowing state-run fuel retailers to set diesel prices, lifting the ban on mining and passing legislation will have a positive effect on the companies. Photo: AFP Premium
Moody’s said that the recent policy changes by the government allowing state-run fuel retailers to set diesel prices, lifting the ban on mining and passing legislation will have a positive effect on the companies. Photo: AFP

Mumbai: Indian companies, particularly those from the transport, metals and automotive industries, are well placed to benefit from economic recovery in the next 12 to 18 months, the government’s push for reforms, lower interest rates and weaker commodity prices, according to Moody’s Investors Service, Inc.

The recovery is also likely to improve the credit ratings of these companies in the next few months, the rating agency said on Monday.

Companies from upstream oil and gas and chemical sectors will most likely not benefit as much because of the recent fall in oil prices, the rating agency said in a report titled, Non-Financial Corporates and Infrastructure – India: Credit Conditions to Strengthen with Growth Recovery and Reform Agenda.

“Credit conditions are likely to improve for pro-cyclical industries in India. 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," Moody’s said.

The rating agency warned that monetary policy easing by the Reserve Bank of India (RBI) will be limited in scope. The central bank has already reduced its benchmark lending rate by 50 basis points in 2015.

“Monetary easing will reduce borrowing costs for companies and also stimulate consumer demand for domestic-focussed industries, although banks are unlikely to fully pass on policy rate cuts to borrowers. Banks will also likely maintain a more conservative approach to fresh lending in sectors where asset quality remains a risk," Moody’s said.

The recent downturn in global commodity prices will lead to lower operating costs for automotive, manufacturing, infrastructure and power companies, but will have a negative effect on upstream oil and gas and chemicals companies.

The rating agency said that the recent policy changes by the government allowing state-run fuel retailers to set diesel prices, lifting the ban on mining and passing legislation will have a positive effect on the companies. However, there are still structural challenges the government has to deal with.

“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, 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," Moody’s said.

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Published: 11 May 2015, 11:57 AM IST
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