Indian private sector’s capital spending will make a comeback in 2016-17 on the back of an overall improvement in the operating environment, says a new report from global rating agency Standard & Poor’s.
This is significant as over the past two years, the Indian private sector generally had taken a back seat in capital spending.
However, capital spending in India will continue to fall in fiscal 2015-16 despite the economy being one of the few bright spots in Asia Pacific, according to the new report ‘India Credit Spotlight’ released on Wednesday.
This study provides insights into the key risks and trends for India’s largest 100 companies by market capitalisation.
"We believe capital spending will take 12 more months to start recovering. We expect government-owned companies and Reliance Industries to lead capital spending before a broader-based pick up occurs", said Mehul Sukkawala, Senior Director Corporate Ratings, South Asia, S&P Ratings Services.
He highlighted that reforms will be the key in decision of the corporates in making future investments and that the pace of growth will depend on pace of reforms.
S&P clearly expects the public sector entities to take the lead in capital investments, while the private sector wants to see improvements on the ground before increasing spending.
The study also showed that majority of the top 100 Indian corporates maintained conservative leverage levels.
The leverage of Indian corporates has increased, but it is much lower than that of the top Chinese and ASEAN corporates, Sukkawala said.
The top 100 companies had a gross debt of $ 300 billion in fiscal ended March 2014.
Utilities and infrastructure, and metals and mining sectors, which now account for about 50 percent of top Indian corporate debt, are the sectors most squeezed by high capital spending.