Indian Firms Get Thumbs Up From S&P, Expect Better Earnings Growth

S&P Global Ratings has said that Indian companies are in a solid financial position thanks to the country’s robust economic growth and improved financial health.

What Happened? S&P said in a note that Indian companies are expected to see a 50% increase in earnings compared to five years ago, while their debt levels have remained steady, indicating improved credit quality.

This positive outlook is driven by rising domestic demand and sector recoveries, offsetting global economic challenges and higher borrowing rates.

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S&P predicts India’s economic growth to be the highest in the region, with projected rates of 6.0% in 2023 and 6.9% in 2024.

S&P also highlighted that Indian companies benefit from ample onshore liquidity, helping them navigate challenging external funding conditions. While reducing debt remains a focus, increased capital expenditure may slow down the pace of debt reduction.

Nevertheless, S&P expects the debt-to-earnings ratio of Indian firms to improve, declining to around 2.4 by March 2024 from 2.7 the previous year. This represents a significant improvement from the ratio of 4.3 recorded in March 2020.

Last week, an analyst at S&P said that India's sovereign rating could be hiked if the country achieves sustained improvement in its fiscal metrics and maintains lower inflation with monetary policy support.  In May, S&P had affirmed India's "BBB-" long-term and "A-3" short-term sovereign credit ratings, while maintaining a stable outlook on the long-term rating.

Last month, finance ministry officials met with ratings agency Moody’s to push for the upgrade, discussing borrowing, disinvestment targets, and state budgets, according to multiple media reports.

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