Revival in private capex may take time: Moody’s

Rating agency Moody’s Investors Service on Tuesday said that investment levels in India are showing nascent signs of recovery, driven by an upturn in the capital replacement cycle, and increased public sector expenditure.

“Recent high-frequency data show that India’s investment cycle is starting to pick up,” said Rahul Ghosh, vice-president and senior research analyst at Moody’s.

“However, a revival in private sector capital expenditure will be required to sustain the recovery in investment activity, because India’s weak fiscal position will limit the ability of the government to further expand public sector-led investment,” Mr Ghosh added.

He further said that a broad-based and sustainable revival in the private sector capital expenditure cycle will likely take longer to materialise, given the high debt levels in the non-financial corporate sector, asset quality concerns in the banking sector, and subdued external demand.

On the 2016 outlook for non-financial corporates, the rating agency believes that strong domestic growth in India will offset global headwinds.

In particular, healthy 7.5 per cent domestic GDP growth for the fiscal year ending March 2017 and a pick-up in manufacturing activity will be broadly supportive of business growth for India’s non-financial corporates in 2016. But corporates remain vulnerable to volatility in the Indian rupee against the US dollar.

Additionally, the rating agency said lower commodity prices have benefited many Indian corporates, given the country’s status as a net importer of raw materials, and its recent history of high inflation. The resultant moderating pace of inflation should result in lower borrowing costs for corporates and lower yields on corporate bonds.