Fitch Says Better Profitability At Indian Corporates To Support Rating Headroom

India’s robust economic growth will boost demand for corporates despite weakness from slowing growth in key overseas markets, Fitch India Services Pvt. said on Friday.

Easing input cost pressure should boost profits in the next financial year by 290 basis points above the levels in the last fiscal, helping corporates maintain adequate rating headroom despite higher capital expenditures, the ratings agency said in a release. "We expect India to be among the world's fastest-growing sovereigns, with resilient GDP growth of 6.5% in FY25 (FY24F: 6.9%)."

The demand will remain strong for cement, electricity and petroleum products, with high frequency data in 2023 sustained at well above pre-Covid-19 pandemic levels.

The country's rising infrastructure spending will also boost steel demand. Car sales will continue to rise despite expectations of moderation after robust growth in 2023, according to Fitch.

Slowing demand in the U.S. and Eurozone is likely to moderate sales growth for IT services. However, a corresponding easing of employee attrition and wage pressure should underpin higher profitability and solid rating headroom at rated IT services companies, it said.

Rising demand will help maintain industry balance in the cement and steel sectors despite a faster pace of new capacity additions. Margins at India's top-two telecommunications companies will continue to benefit from industry consolidation.

Refining margins at oil marketing companies are likely to stay above mid-cycle levels in the near term. Lower crude-oil prices after the last fiscal should support marketing profitability.

"We believe India's structural demand visibility, supply-side reform by the government and healthier corporate and bank balance sheets will enable a further increase in capex across most sectors following an uptick in FY23," it said.