Demand slowdown and not foreign exchange volatility is causing stress to Indian companies, according to credit rating agency Crisil’s ‘State of the Nation’ report.

“What stresses nearly a quarter of the companies analysed is the demand slowdown. Two out of three sectors will see a decline in revenue growth,” the report said.

It observed that the collapse of the investment cycle will severely dent infrastructure, capital goods, automobiles and real estate sectors.

Forex volatility is the least of the sources of stress for the 2,481 companies Crisil rates as investment-grade (BBB- and above). It affects only 6 per cent of them.

The report is based on a data on 2,481 companies that Crisil rates as investment grade; these account for 32 per cent of banks' corporate lending.

Rupee depreciation has increased India’s currency competitiveness, said the report.

“The rupee could rebound to 60/$ by March 2014 as the current account deficit declines to 3.9 per cent, but the currency will remain significantly depreciated compared with last fiscal,” Roopa Kudva, Managing Director & CEO, Crisil, said.

Hence, export-linked sectors such as IT-ITES, pharmaceuticals, textiles, readymade garments and cotton-yarn spinning will do well.

Agriculture is set to surprise on the upside because of a bountiful and well-distributed monsoon. Farm GDP growth could more than double from last year’s 1.9 per cent to 4.5 per cent. This will help check food prices and support rural consumption.

The farm fillip and pricing power will help the tractor and telecom sectors, respectively, to do well.

Services, which have been the bulwark of the economy for several years, will grow at just 6.5 per cent this fiscal compared with nearly 10 per cent through the last decade.

Crisil’s GDP growth estimate has been reduced to a decade-low of 4.8 per cent (against 5.5 per cent forecast in July) for 2013-14. “With luck, if agriculture surges 6 per cent, it could push overall GDP growth to 5.2 per cent,” said Kudva.

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