Earnings uncertainty for India Inc to persist over near term: Moody's

Softening in input costs, coupled with price hikes by entities led to sequential recovery in companies' margins in the past few quarters.

However, Moody's said earnings uncertainty will likely persist over the near term owing to geopolitical developments and the impact of the inflationary environment on demand.

The ratings agency expects the credit quality of India Inc to remain supported by the country's relatively strong economic growth, supportive government policies and investments in large infrastructure projects.

Although high inflation and interest rates globally will weaken demand across major economies, Indian corporates are not overly reliant on exports.

“While higher inflation will cause profitability to weaken, especially for sectors that are not able to pass on the increased cost to customers, India's relatively strong economic growth will limit the earnings decline for rated corporates," said Vikash Halan, a Moody's Associate Managing Director.

Moody's said India will remain a bright spot among its G20 emerging market peers in the steel sector, with the country's overall consumption further expanding around 5-7% over 12-18 months.

For rated steel makers, substantial deleveraging over the past few years will help them preserve their credit quality, even as more investments in new capacity limit free cash flow generation, and as their new debt rises.

For refining and marketing companies, Moody's said their ability to pass on cost increases is constrained because the selling prices of petrol and diesel have remained largely unchanged since April 2022.

Going forward, sectors like hotels, aviation, construction and renewable energy are expected to face healthy demand growth, while others like automotive, consumer durables, logistics, power,real estate, pharmaceuticals, fertilizers, healthcare and retail will likely experience stable demand.

Meanwhile, sectors such as agricultural produce, fast-moving consumer goods, dairy, poultry, edible oils and tractors will be affected if El Nino materialises.