India Inc Balance Sheets Turning The Corner, Says Deutsche Bank
India Inc is ready to “get out of the woods” after four consecutive years of elevated balance sheet stress.
- India Inc. balance sheets are improving
- Debt-to-equity ratio of BSE 500 companies lowest in six years at 0.79
- Interest coverage ratio improves year-on-year for the first time in six years
- Rating upgrades from credit rating agencies are becoming broad based
India Inc. is ready to "get out of the woods" after four consecutive years of elevated balance sheet stress, according to a recent Deutsche Bank research report.
Multiple factors are turning conducive for faster deleveraging by Indian corporates, Deutsche Bank said. The combination of improved balance sheets, a sharp decline in interest costs and government's focus on the ‘twin balance sheet’ problem - over-leveraged corporate sector and stressed banking sector - bodes well for India Inc.
The forecast comes in the backdrop of a decline in the debt-to-equity ratio of BSE 500 companies to 0.79 in the financial year 2016-17 - the lowest in six years. The interest coverage ratio has shown year-on-year improvement for the first time in last six years. And finally, rating upgrades from credit rating agencies are becoming broad based, the report said.
Fund Raising Spree
Fund raising by corporates, especially from high beta sectors like metals and financial sectors, through qualified institutional placements (QIP) is on the rise as risk appetite is stronger among domestic and foreign investors This should help in deleveraging stressed balance sheets, Deutsche Bank said.
Earnings Revival
The reversal of wholesale price inflation to positive territory will help accelerate earnings growth, Head of India Equities Research Abhay Laijawala wrote in the report. Lower interest rates will be particularly supportive for earnings in real estate, industrials, utilities, telecom and materials sectors, the report added.