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India outlook for 2018 stable; telecom, realty a drag, say Moody’s, ICRA
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Moody’s Investors Service said, Thursday, that its outlook for India through 2018 is stable with the country’s gross domestic product growing at 7.6% and the corporate sector, excluding financial services, expanding at a brisk pace.

However, it assigned a negative outlook for the telecom sector, which it said, will continue to reel under heavy debt and rising competition may lead to further consolidations, to create a three-player market.

The global credit rating agency’s Indian affiliate ICRA also has a stable outlook for passenger vehicle, construction, cement and textiles sectors, but it feels real estate will be in the negative zone.

“Our stable outlook (for India) is underpinned by the expectation that GDP growth of around 7.6% will result in higher sales volumes, which along with new production capacity and stabilising commodity prices, will support EBITDA growth of 5%-6% over the next 12-18 months," said Laura Acres, managing director at Moody’s Corporate Finance Group.

Moody’s also believes that recent reforms initiatives by the Indian government may start reaping benefits throughout the year. “Simplification of the Goods and Services Tax and other structural reforms or improved commodity prices could result in higher EBITDA growth, and provide means for deleveraging for some corporates," Acres added.

Moody’s expects India’s steel consumption to grow in mid-single digits over the next 12-18 months to support a stable outlook. It added that the sector may witness consolidations.

Moody’s also believes that IT services companies will remain stable and continue to drive growth with its offerings to the Western economies, despite global challenges, especially in terms of H1B visas and the fast-pace of technology change that will require investments or acquisitions.

According to ICRA Ltd chief rating officer Anjan Ghosh, the outlook for real estate sector remains negative over the near- to medium-term as it continues to face demand headwinds owing to elevated property prices, subdued business environment, and recent regulatory developments, including the implementation of the Real Estate Regulatory Act of 2016 and GST.

“This coupled with execution delays has dampened consumer confidence, resulting in deferred purchase decisions,” Ghosh added. However, ICRA expects the sector to consolidate with larger developers to benefit in the long run, given the tighter compliance and transparency requirements.

It expects new orders in the construction sector to remain healthy over the next two to three years, driven by huge spending on roads, railways, urban infrastructure and affordable housing. “The easing approval process is expected to ramp-up the pace of execution and result in higher growth in operating income for construction companies,” ICRA said.

The outlook for passenger vehicle industry, however, remains stable with demand over the near- to medium-term expected to be robust at 9-11%, supported by favourable demographics, rising competition and limited pricing power.

“Spends on product development, including for tightening emission norms, especially for diesel original equipment manufacturers, will drive a significant part of capex over the next 2-3 years,” ICRA said.

ICRA’s outlook on the cement sector also remained stable through 2018. “Cement off-take remained weak in the first half of 2017-18, reporting decline of 2%, due to subdued real estate activity, sand shortage and transitional issues related to implementation of structural reforms such as RERA and GST.” The rating agency said demand for cement will recover from the fourth quarter of the current fiscal.

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