The report highlights strengthening credit quality across various sectors, driven by enhanced
S&P Global's analysis reveals that one in three ratings within India now shows a positive outlook, marking a significant shift after three years of net positive rating actions. The report indicates that corporate India has built greater resilience against downside risks, reflecting a more stable and robust credit environment.
However, corporate leverage in India is expected to decline marginally, even as capital expenditure (capex) rises by 30% compared to pre-pandemic levels. This improvement is attributed to more entrenched financial discipline among companies, which have managed to balance rising capex with prudent financial management.
The report forecasts a 10% growth in aggregate EBITDA in 2024, driven by strong performance in sectors such as telecommunications, airports, commodities, and chemicals. This broad-based earnings growth underscores the resilience of corporate India and its ability to generate substantial cash flows despite a challenging global environment.
Indian companies are benefiting from strong onshore liquidity and the absence of large debt maturities, which support their liquidity profiles. The resilience of these companies to foreign exchange and interest rate volatility further strengthens their liquidity positions.
Corporate India's positive credit trends are closely linked to broader economic drivers such as GDP growth. Increased consumer spending is bolstering sectors like airports, automobiles, and telecommunications. Meanwhile, infrastructure investment is significantly boosting the commodities, utilities, and commercial automotive sectors.
S&P Global notes that both infrastructure and non-infrastructure sectors are experiencing reductions in leverage, with absolute debt reduction more pronounced in non-infrastructure sectors. However, infrastructure entities are slower in reducing debt due to higher capex, particularly in energy transition initiatives.
Operating cash flows across sectors are outpacing capex, supporting further deleveraging. While capex intensity remains higher in infrastructure sectors, the neutral free operating cash flow is seen as a positive trend, indicating that companies are managing their capital expenditures efficiently while maintaining cash flows.
The transportation infrastructure sector is benefiting from traffic growth and tariff increases, with rising cargo volumes supporting port revenues and improved operating efficiencies boosting margins. Airports are also experiencing higher traffic levels and tariff increases, contributing to better operating cash flows and overall credit quality.
In the utilities sector, rising demand and new capacity are driving earnings growth, though capex remains high, particularly for energy transition projects.
The steel sector is expected to see increased operating cash flow due to falling input prices and new capacity additions.
Earnings in the oil and gas sector are expected to remain stable, supported by a favorable price outlook and consistent production levels.
The telecom sector is also on a path to significant deleveraging, with capex expected to moderate following the 5G auctions in 2023.
The auto sector is witnessing sustained operating performance as volumes stabilize after the supply chain disruptions of 2022. S&P Global notes that debt levels in the auto sector are expected to remain low following sharp deleveraging, while normalized growth in auto sales and stable margins support the sector's positive outlook.
In the chemicals sector, falling input costs and stabilized product prices are expected to drive earnings recovery following a downturn in 2023. Improved signals show a broader trend of recovery across various industrial sectors in India.
S&P Global concludes that with the highest proportion of positive credit outlooks in the region, India's corporate sector is well-positioned for continued
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