Do it yourself

After several years of corporate & bank balance sheet repair and fiscal correction, the contours of India's next economic growth cycle are beginning to emerge. With the Reserve Bank of India (RBI) maintaining a growth-supportive stance; union government showing strong commitment to fiscal consolidation, easing financing pressures for the private sector; and global markets showing signs of stabilization as geopolitical confrontations ease and trade disputes settled; the stage is set for a potential economic upswing. The spotlight is now on three competing themes — corporate consolidation, private capex, and household consumption — each pulling investor attention in different directions. Corporate begin to re-leverage After many years of deleveraging, corporate debt in India appears to have bottomed out and is now beginning to rise. This shift in trajectory marks a significant departure from the post-2016 era, where Indian companies focused on strengthening balance sheets followi...

A recent report of India Ratings & Research (A Fitch group company) makes some very interesting observations about the corporate credit profile of India. The report highlights that corporate credit profile is deteriorating progressively and this trend is likely to persist in near term, implying that (a) the stress in the financial system may not ease materially in the near term and (b) the credit growth that is struggling at the multi year low levels may not see any significant improvement in the next few months at least. The key highlights of the report could be listed as below: Rating downgrades by India Ratings and Research (Ind-Ra) increased sharply in 9MFY20, with the number of upgrades reducing dramatically. Defaults were significantly higher at 4.9% of all issuers reviewed during this period, as compared to 2.9% last year. Utilities and capital goods industries together contributed to the most number of defaults at 31%. Rating changes for 9MFY20 wa...