India's reforms, economic momentum to unlock corporate growth: S&P

India's reform drive and economic momentum could give plenty of growth opportunities to India's top corporates, according to three articles that Standard & Poor's Ratings Services published today as part of a special report, titled India Credit Spotlight. But many corporates are waiting for the government to put policy into action before investing further.

"The key to corporate growth will be whether the government can deliver on its reform promises. If it does, we believe the top players will be ready to capitalize," said Standard & Poor's credit analyst Mehul Sukkawala. "In the meantime, we believe the Indian corporate sector will maintain its conservative stance toward growth rather than throw caution to the wind."

In the article titled Myth Busted: India's Top Corporates Are Hardly Regional Weaklings, Standard & Poor's analysed the operating, cash flow, and leverage data of India's top 100 corporates, whose members are based mostly on market capitalization. The article suggests that on these parameters, the Indian corporate sector is by no means a laggard to its Chinese and ASEAN neighbors.

"The issues identified with Indian corporates - overindebted and underperforming companies - are concentrated in just a handful of Indian sectors, albeit critical ones: utilities and infrastructure, and metals and mining," said Sukkawala. "Fixing the well-known problems within these sectors will predominantly require government decision-making and execution of regulations; the companies can't do it themselves."

Overall, we believe the view of India as a global bright spot for investing appears fully justified from a credit risk perspective. However, in the article titled India's Private Sector Companies Adopt A Wait-And-See Approach To Capital Spending, Standard & Poor's forecasts that capital spending will take 12 more months to start recovering.

"Companies are likely to consider new projects only after they can sense the operating environment in India is improving at the ground level. They would also need to be confident that current investments are likely to generate good cash flows before committing fresh investments. This is positive from a credit assessment perspective over the next 12 months, especially for companies with weak financial ratios and liquidity," said Sukkawala.

The new Indian government has promised to tackle some of India's longest-festering problems that have kept the country's enormous economic potential in check. The country's favourable economic conditions and a strong central government give it the flexibility to pursue reforms. Initiatives include auctions of energy resources, such as coal, simplified tax regimes, and accelerated approval procedures to speed up the ease of doing business.

In the article titled India's Reform Push Is An Encouraging Start For Corporates, Standard & Poor's suggests the government will need to turn its plans into actions, coordinate better with states, and remove bottlenecks across sectors to implement reforms. The government may have to dilute some of its reforms because of differing views of opposition parties and the hesitancy of some of its allies.

"Overall, we are optimistic that the impact of government reforms will be positive in the next few years. The cumulative effect is likely to result in an improved economic and business environment for India's corporates," said Standard & Poor's credit analyst Abhishek Dangra.