India Ratings and Research does not expect performance of Indian companies to improve substantially in FY18 and any pick up in private capex is at least another two fiscal years away. Rise in commodity prices and up tick in interest rates amid rate hikes globally are two important risks to slow-but-improving demand for FY18.

“Demand is a big challenge. It is improving and will continue to improve but is not sufficient to de-leverage investment driven sectors. For the last three years we have been believing that investment cycle won’t pick up till second half of FY19. We will have to see whether this gets spilled over beyond FY19,” said Rakesh Valecha, senior director and head-credit and market research, India Ratings and Research.

According to the rating agency, consumption driven sectors like automobiles and auto components will continue to do well. On the other hand, investment and commodity linked sectors like steel, thermal power and telecom will continue to disappoint. In short, FY18 will the year wherein quality companies will be seen improving their cash flows and stressed companies showing limited or no signs of improvement thereby increasing scope for consolidation.

The Indian rating agency from the US-based Fitch group released its outlook on six sectors such as automobiles, auto components, steel, thermal power, telecom and oil and gas. It has maintained its stable outlook on automobiles (including components) and oil and gas, while negative outlook has been retained on steel and thermal power. It has revised its outlook to negative from stable on the telecom sector due to rising competition.

The rating agency will be releasing its outlook for more sectors including construction, real estate, pharmaceuticals and sugar by end of this month.