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Moody’s Ratings expects corporates to start exploring offshore borrowings for funding its capex this fiscal after shunning it for last few years due to high cost.
Vikash Halan, Managing Director, Moody’s said while India’s domestic liquidity and companies’ internal cash flow can largely cover their corporates’ capital needs, offshore funding will remain key despite its share reducing to 12 per cent of India Inc’s total funding due to its higher costs and rising domestic liquidity.
Moody’s believes non-financial corporates will face stiff competition from the retail sector for bank funding as retail loans face high demand and have higher yields relative to corporate loans.
Also read: Is consumption-led growth waning?
At the same time, India’s growing domestic bond and equity markets still comprise a small share of companies’ funding, at only 12 per cent over the past decade on average.
Over the past decade, the corporate sector has steadily cut debt to 55 per cent of GDP from 72 per cent while leverage has remained stable.
Steel production
On the proposed capex, Moody’s subsidiary ICRA Ratings expects steel production capacity to increase to 196 million tonnes per annum by FY’27 from 158 mtpa as of FY’23.
Cement companies led by UltraTech, Ambuja and Shree Cements will add 38 mtpa this fiscal supported by healthy demand, it said.
Though the corporate sector saw steady business momentum last fiscal supported by both consumption and investment activity, rural demand was depressed due to subpar monsoons and inflationary trends.
Urban focus
Conversely, it said urban-focused businesses such as residential real estate, hospitality, airlines, jewellery and automobiles have continued their robust momentum.
K Ravichandran, Chief Ratings Officer, ICRA said despite the likely higher debt, India Inc. will continue to report stable credit metrics due to stabilising inflationary pressures and a steady interest rate regime.
The forecast of a normal monsoon season should support a nascent recovery in rural markets, he said.
ICRA expects the pace of the private sector capex to be moderate in the first half of this fiscal due to the likely pause in infrastructure activities before the general elections.
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