Moody's Investors Service, an international credit rating agency, on Thursday said its outlook for Indian non-financial corporates is negative, reflecting macro-economic challenges over the next 12 months.
India's GDP growth is expected to remain weak at 5.5 percent in the fiscal year ending March 2015, as elections will delay reforms needed to revive the economy.
The heightened expectation of a scale back of quantitative easing by the US Federal Reserve in 2014 will keep the Indian rupee volatile, making the operating environment more challenging for importers and exporters.
These conclusions were contained in a just-released report titled, "2014 Outlook - India Non-Financial Corporates, Weak Economy, Political Uncertainty and Quantitative-Easing Scale Back Are Biggest Risks".
The report was authored by Vikas Halan, a Moody's Vice-President and Senior Analyst in Singapore. Companies will also face higher borrowing costs and tight funding conditions with monetary policy likely to remain tight.
Moody's could move to a stable outlook if its GDP growth expectations exceed 6%, the rupee stabilizes - such that one-year volatility falls below 5% - and a development and reform-focused Government is formed with a strong majority.
Meanwhile, the weaker rupee has improved competitiveness for the IT/business process outsourcing sector, where its sector outlook is stable.
Moody's outlook is negative for the steel, metals and mining sectors, where it expects the weak economy and capacity expansions to weigh on steelmakers' margins and utilisation rates.
Moody's also has a negative outlook for the automotive sector, as it expects demand to remain weak. And finally, Moody's outlook is stable for the telecommunications sector, where it expects average revenue per user and EBITDA margins to improve.