Some of the largest investors, intermediaries and issuers in Asia Pacific are confident of India’s stable economic growth in the region of 6.5 per cent and 7.5 per cent over the next 12-18 months, Moody’s Investors Service said in a statement on Monday.
According to the global credit rating agency Moody’s, the views were gathered in a poll conducted jointly with its Indian affiliate, ICRA Ltd.
“More than 60 per cent of market participants that Moody’s and ICRA surveyed in Mumbai and Singapore believe that India’s (Baa3 positive) GDP (gross domestic product) growth rate will range between 6.5 per cent and 7.5 per cent over the next 12-18 months,” Moody’s said.
“Given the economic and institutional reforms in India, and further changes that could follow, India will likely grow faster than similarly rated peers over the next 12-18 months despite a short-term drag caused by demonetisation,” said Marie Diron, a Moody’s Associate Managing Director.
On the impact of Goods and Services Tax (GST), Moody’s said that over the medium term, the GST will contribute to productivity gains and faster GDP growth by making it easier to do business, thereby unifying national markets and enhancing India’s attractiveness as a foreign investment destination.
It will also help facilitate the government revenue generation by improving tax compliance and administration; with both factors positive for India’s credit profile, which is constrained by a low revenue base, Moody’s said.
“Overall, as the positive economic impact of GST materialises, economic growth should gradually accelerate to around 8 per cent over the next three to four years,” said Diron.
“On the question of which factors will drive conditions for Indian corporates over the next 12-18 months, 58 per cent of respondents in Mumbai and 53 per cent in Singapore say that a combination of three factors: GDP growth of 7.0%-7.5%, the commissioning of new production capacity and stabilizing commodity prices will drive EBITDA growth,” the statement said.
Moody’s view is that India’s GDP growth, together with capacity additions and stabilizing commodity prices, will support EBITDA growth of 6-12 per cent at Indian corporates over the next 12-18 months.
As for the country’s banks, 76 per cent of the persons polled agree that the greatest risk to the asset quality of Indian banks over the next 1-2 years is their exposures to large corporates in the power, steel and infrastructure sectors.
While Moody’s agrees that the banks’ asset quality can deteriorate due to their exposures to certain sectors such as power, steel and infrastructure, the formation of new non-performing loans (NPLs) will be slower than in the past two to three years because of the banks’ recognition of a large amount of NPLs.
According to Moody’s, 76 per cent of the market participants in Mumbai and Singapore agree that the conventional power sector in the infrastructure segment is most likely to face the greatest credit stress over the next 12-18 months.
On the other hand, Moody’s maintains a stable outlook on India’s conventional power sector, reflecting improvements in domestic coal production, which moderate risks to fuel supply.
According to Moody’s, the surveys were conducted during Moody’s and ICRA’s third annual India credit conference titled “Reforms, Sector Trends, Credit Risks & Opportunities”.
The event was held in Mumbai on June 8 and in Singapore on June 21 bringing together 159 market participants in Mumbai and 61 in Singapore.