India Ratings and Research (Ind-Ra) does not expect the performance of Indian companies to improve substantially in FY18. Pick-up in capital expenditure by the private sector is at least another two fiscal years away. Rise in commodity prices and uptick in interest rates amid rate hikes globally are two important risks to slow-but-improving demand for FY18.
“Demand is a big challenge. It is improving and will continue to improve but is not sufficient to deleverage investment-driven sectors. For the last three years we have been believing that investment cycle won’t pick up till the second half of FY19. We will have to see whether this gets spilled over beyond FY19,” said Rakesh Valecha, Senior Director and Head — Credit & Market Research, India Ratings and Research.
According to the rating agency, consumption-driven sectors such as automobiles and auto components will continue to do well. On the other hand, investment and commodity-linked sectors such as steel, thermal power and telecom will continue to disappoint. In short, FY18 will be the year where quality companies will be seen improving their cash flows and stressed companies showing limited or no sign of improvement, thereby increasing the scope for consolidation.
The Fitch group company released its outlook on automobiles, auto components, steel, thermal power, telecom and oil & gas sectors. It has maintained stable outlook on automobiles (including components) and oil & gas, and retained negative outlook on steel and thermal power. It has revised its outlook to negative from stable on the telecom sector due to rising competition.