Economy
Weak demand, high debt limit credit ratings of Indian firms: S&P
Mumbai, Weak demand and high debt continue to pull down the credit profiles of Indian companies in an overall context of lacklustre economic conditions in the country, ratings agency Standard & Poor's (S&P) said on Tuesday.
 
"Companies still face anaemic demand and lower capacity utilisation, resulting in weak profitability," S&P said in a report titled "Revival In Domestic Demand Can Reduce Downside Risk For Indian Companies In 2016".
 
"Economic conditions in India remain lacklustre despite several government measures to boost investments in the economy," said S&P's credit analyst Mehul Sukkawala.
 
"If these companies can manage this (6-9 month) period without significant damage to their financial strength, we believe their credit profiles could have bottomed out," he said.
 
"The first six to nine months of 2016 will be crucial for rated Indian companies. This period will provide signs on whether domestic demand is reviving, government reforms are moving ahead, and global economic conditions are stabilizing," he added.
 
Indian companies with high levels of debt remain vulnerable to downgrades, while lower commodity prices have also reduced headroom for firms operating in commodity linked sectors such as metals and oil and gas, the American agency said.
 
S&P's said the credit quality of half its portfolio of 22 rated firms in India is expected to remain stable in 2016.
 
The report also said rated companies are at their peak debt levels following a significant increase in debt-funded investments over the past five years, thus limiting the scope for positive rating action.
 
On the fallout of global developments, S&P said the Chinese slowdown will have limited direct impact while higher US interest rates should be manageable.
 
"A slowdown in China is not a key factor for the credit profiles of most rated Indian companies because these companies target the domestic or developed markets.
 
"That said, any further slowdown in China could trigger significant turbulence in the global financial and commodity markets and hurt Indian companies," Sukkawala said.
 
The impact of a US interest rate hike on Indian firms would come largely through the exchange rate channels.
 
"The expectations of a rise in US interest rates should be manageable but any related fallout from sudden and significant depreciation of the Indian rupee could pose a bigger risk to our rated portfolio," said S&P.
 
The rupee slid on Friday by 30 paise to a new 28-month low at 67.59 owing to fresh US dollar demand from importers caused by continuous foreign capital outflows.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Government may miss FY16 fiscal deficit target
While the miss is due to lower than expected GDP, the absolute fiscal deficit is seen close to the budgeted figure at around Rs5.56 lakh crore, which is a rise of 8.5%, says India Ratings & Research 
 
The Indian government is likely to miss its FY2016 fiscal deficit mainly due to lower than expected gross domestic product (GDP), says India Ratings and Research (Ind-Ra), in a report. 
 
According to the ratings agency, the FY16 fiscal deficit is likely to rise to 4.1% of GDP, higher than the Indian government's budgeted target of 3.9%. While the miss is due to lower than expected GDP, the absolute fiscal deficit is seen close to the budgeted figure at around Rs5.56 lakh crore, which is a rise of 8.5%. Fiscal deficit for the first eight month of FY16 stood at Rs4.83 lakh crore, which is 87% of the budgeted deficit for the full year, it added.
 
Ind-Ra said, "The main reason for the higher than budgeted fiscal deficit as a percent of GDP is the likely lower nominal GDP growth rate in FY16 than the 11.5% nominal GDP growth assumed in the FY16 budget estimate. Nominal GDP growth FY16 is expected at 9.6%, weaker than budgeted due to the lower than expected inflation. We estimate that wholesale prices on an average have declined by 1.4% in FY16. Tax revenues for the period April-November stood at 50% of the full year budgeted, at Rs9.19 lakh crore."
 
The ratings agency said it expect the GDP to expand at 7.9% in FY2017 from 7.4% in FY2016. It said, "After bottoming out in FY13, the GDP so far has followed a steady growth trajectory and is expected to do so even in the medium term. All major sectors namely agriculture, industry and services are expected to contribute to the gross value added (GVA) growth. Under the assumption of a normal monsoon, the agricultural GVA is expected to recover and grow at 2.2% in FY17 compared with 1.1% in FY16. Since there has not been any past instance of three consecutive monsoon failures, the likelihood of a normal monsoon in 2016 is quite high. The information available so far indicates that La Nina, a phenomenon associated with good monsoons, will hold sway in 2016."
 
 
To achieve the 3.9% fiscal deficit target, fiscal deficit will have to be compressed by Rs21,100 crore. Ind-Ra said it believes this can be achieved only by deferring parts of the subsidy payments to FY17, cutting down capex or a combination of both. Cutting down capex, when the need is to step up government investment, will be counterproductive, it warned.
 
According to the medium-term fiscal policy statement published along with the FY16 budget, the fiscal deficit target for FY17 and FY18 is 3.5% and 3.0%, respectively. However, Ind-Ra says it believe achieving these targets in view of the likely acceptance and implementation of the recommendations of the Seventh Central Pay Commission will be difficult. 
 
Ind-Ra expects the fiscal deficit of FY17 to come in at 3.9% of GDP. This will push the attainment of the fiscal deficit target of 3% of GDP to FY19, a year later than envisaged in the fiscal policy statement. In the past also, pay revisions have pushed fiscal consolidation targets. Accordingly, the fiscal deficit targets are likely to be 3.9%, 3.5% and 3.0% in 2016-17, 2017-18 and 2018-19 respectively.
 
"In view of the above, stepping up government capex is indeed going to be challenging. Yet, we believes the government will have to catch the bull by the horns and find ways to step up public investment," the ratings agency concluded.

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COMMENTS

Ganesh Kamat

2 years ago

1)Start-up needs protection from BABUS,
Babus Harassing the youth,
Traders,Farmers, Voters.. who wants to work.
Babus are ruthless as they
pay "Protection Money" to......?
for Posting/ Promotion/ Permit...
Administrations Reform is a Must,
2)Farmers suicide can get reduced,
by encouraging them to sell their
farm products on Railways to commuter
& roads to motorists, also we need
more Passenger Train, to help farmers
to sell farm products, to nearby Towns.
3) For Big Tax collections
take 1% Tax from 20 Taxpayers
than 20% Tax from one Taxpayer.
4) So with 1% Tax on gross Receipts,
the Taxpayers will work to improve Business
R.&D,Social work.So more Employment,
make in India, less Farmer Suicide,
No Black Money & Peace of mind to the people.
5) Average say on Rs. 30 L Receipt,
Pay Rs. 0.3 Lac Tax per year.
If Taxpayers = 60 Cr.
Tax collection will be 18 L- Cr.
So Big Tax Collections.

Siva Kumar Dattu

2 years ago

crude oil price declining will help government increase excise duty.So government may achieve it's target.

India's oil import prospects rosy with lifting of Iran sanctions
With the lifting of nuclear sanctions on Iran, the prospects for India as a consumer of oil, prices of which are in free fall towards levels of less than $20 a barrel, look rosy in the near term, says an expert.
 
"From a supply point of view, cheaper oil is good for emerging markets like India and such low prices might sustain for a longer period. It makes for lower trade deficits, helps lower fiscal deficit," Anand James, commodities expert with Geojit BNP Paribas Financial Services, told IANS.
 
"However, from the price point of view, low prices discourage investment in oil exploration and capital expenditure in the sector and in spin-offs, which has a depressive effect and the slowdown thereby gets exaggerated, as seen in case of investments in US oil," he added.
 
The Indian basket of crude oils closed trade on the last trading day on Friday at a 11-year low of $26.40 a barrel, according to official data. The oil marketer cut the price of petrol and diesel by under a rupee each on the same day.
 
The Indian basket, comprising 73 percent sour-grade Dubai and Oman crudes and balance in sweet-grade Brent, had touched a previous monthly low of $26.27 in September 2004.
 
India can resume its unrestricted import of oil from Iran, which is expected to increase its export of 1.1 million barrels of oil per day by 500,000 soon, followed by a further 500,000 bpd thereafter, thus adding to the supply glut that has resulted in global prices plunging in a year from levels of $120-$130 a barrel to below $30.
 
Marking a 13-year low, the price of the Organisation of Petroleum Exporting Countries (OPEC) basket of twelve crudes stood at $24.74 a barrel on Friday, compared to $25 on the previous day, the organisation's secretariat said.
 
The prospect of Iran doubling its crude oil exports has provoked the continuing fall in oil prices with UK Brent crude closing trade on Friday below $29 a barrel.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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