Indebted firms may not cash in on GDP growth

Mumbai: Investors will have to be careful to avoid investing in stocks of corporates who have been heavy borrowers as they will be unable to take the benefits of the gradual revival of the economy and are likely to report a higher degree of deterioration in financial performance than non-leveraged borrowers in the next 18 months.

Their overall improvement in profitability will be restricted to single digits in FY17 (FY16: 2 per cent yoy, FY15: 8.6 per cent yoy), says India Ratings and Research (Ind-Ra).

This would be significantly below the 25 per cent growth seen five years ago in FY11 when the last wave of investments was initiated. Their main handicap will be lack of borrowing capacity due to their stretched balance sheets especially given their sole reliance on Indian banks.

The report further reveals that eight sectors account for 75 per cent of the total debt of 500 corporate borrowers. Of these, positive EBITDA growth for FY16 was reported in auto & automotive supplier (11 per cent YoY), cement (9 per cent), real estate (4 per cent), telecom (7.5 per cent), infrastructure and construction (20 per cent) and power (23 per cent).

Meanwhile, investors flocked to mutual funds as the latter added 12.61 lakh folios, up 2.65 per cent sequentially, in the June quarter to take the tally to a record high of 4.89 crore, according to the Association of Mutual Funds in India (AMFI).

Retail investors continued to pour money in equity-oriented mutual funds (76 per cent of the total retail portfolio) for the seventh consecutive quarter amid strength in the equity market.

Sensex on the rise as GST Bill makes headway

Equities staged a moderate recovery on Wednesday, with the Sensex rising by 48 points to recapture the 28,000-mark as the Centre and states reached a broad consensus on key issues in the  GST bill amid caution ahead of outcome of the Federal Reserve meet.

It also helped that Asian and European markets rallied on expectations of a stimulus from Bank of Japan. Covering-up ahead of tomorrow’s July month expiry in derivatives segment, too gave equities a push.

Making headway on the GST bill, the Centre and states have agreed on the principle that the tax rate will be lower than the current levels. “With state finance ministers meet on GST improving the potential for a consensus, Indian stocks recouped Tuesday’s losses. However, earnings so far having failed to enthuse markets,” said Anand James, Chief Market Strategist, Geojit BNP Paribas.