The ratings agency further said that capacity expansion, inorganic growth spending, refinancing and working capital needs, along with shareholder payments, would keep capital requirements high for non-financial corporates in India. “Capital spending by non-financial corporates will remain high as they expand their capacities to cater to the strong consumption growth expected in the country, at a time when their capacity utilisation is already high,” Moody's said in a statement.
However, it said expectations of strong consumption growth are driven by India's growing population, rising disposable incomes and favourable demographic trends, including a young population and rising urbanisation. “The government's ongoing infrastructure spending also results in a multiplier effect on demand across industrial sectors including steel, cement, automobiles and oil and gas,” it said.
“Even though the government is unlikely to achieve its target of raising the share of manufacturing activity to 25 percent of gross domestic product (GDP) by FY24-25 from 13 percent in FY22-23, assuming that the target is achieved by the end of the decade, the manufacturing sector's contribution to nominal GDP will rise to around $1.7 trillion in 2029-30 from $440 billion in 2022-23,” Moody's added.
On the realty sector front, it also said that ongoing demand from the retail sector, along with higher profitability of such loans compared with corporate loans, implies that non-financial corporates would have to compete with the retail sector to access bank funding. “Corporate loans now make up a third of banks' loan books, down from around 50 per cent a decade ago,” it added.
