Mumbai: International ratings agency Moody's Investors Service on Thursday revised outlook of the country's non-financial corporates to stable from negative in view of momentum in economic recovery and political stability.
"The stable outlook for non-financial corporates reflects our view that economic recovery, enhanced access to global capital markets and successful implementation of pro-market policies will lead to improved corporate cash flows and will be broadly supportive of business growth," Moody's Vice-President and Senior Credit Officer Vikas Halan said in a report.
Improved external vulnerability should also reduce foreign exchange risk for corporates, despite gradual interest rate normalisation by the US Fed, the report said.
The agency released its outlook on the country's non-financial corporates for 2015, which reflects its expectation for fundamental business conditions in the sector over the next 12 to 18 months.
The outlook states that the domestic corporates' key financial metrics will weaken in 2015, but pace of leverage growth will moderate as corporate earnings continue to improve.
Higher equity markets and asset valuations will also support de-leveraging.
The agency changed the outlooks 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.
The report said that the recent energy reforms have also improved overall credit availability for the corporate sector.
In the exploration and production sector, the gas price hike will boost the revenues of upstream players, although the fall in crude oil prices will hurt profitability.
The regional refining margins will remain weak, but recent energy reforms to lower fuel subsidies will reduce the borrowing requirements of refining and marketing companies, it said.
Demand for steel will pick up gradually, but Moody's expects 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 it would change the outlook to positive if the government measures that unlock GDP growth beyond 7 percent lead to a broad-based improvement in credit metrics, or if domestic interest rates are reduced amid easing inflation, leading to an improvement in corporate cash flows.
Halan said he expects GDP to grow at 5.6 percent in FY16, driven by an acceleration in manufacturing activity.
"We would change the outlook back to negative if growth falls below 5 percent and leads to a deterioration in credit metrics, or if higher interest rates brought on by rising inflation and/or exchange rate volatility resulted in a tight funding environment," Halan said.
