GDP growth to top 3-year average: Crisil

Given the strong economic fundamentals, India's GDP growth in 2004-05 is likely to exceed the average annual growth of the preceding three years.

According to Crisil's ratings roundup for 2003-04, India's economic fundamentals are likely to remain buoyant in 2004-05 and the gross domestic product (GDP) growth is expected to exceed the average annual growth of the past three years.

In the financial year ended March 2004, rating upgrades outnumbered downgrades by three to one (14 upgrades and five downgrades) due to the strengthening business fundamentals of the Crisil rated companies.

Crisil director and chief rating officer Roopa Kudva said for the first time in eight years the positive trend in credit quality was uniform across the manufacturing, finance and infrastructure sectors.

The rating agency believes that with the broad-based strengthening of credit quality, increased capacity utilisation levels across the industrial economy and improved environment for raising funds, there is a strong likelihood that industrial investment will pick up in 2004-05.

The infrastructure sector's MCR was particularly strong with four upgrades and no downgrades in financial year 2004, as compared to two downgrades and no upgrades in 2003.

During the period under review, the commodity and financial services sectors accounted for seven of the 14 bond rating upgrades. In addition, eight of the 12 fixed deposit rating upgrades were from these sectors.

The commodity sector upgrades were driven by the financial benefits of higher product prices and the expectation that product prices would hold their levels over the medium term.

The financial sector upgrades reflect the benefit of higher margins in the lending business as the cost of funds declined more than the yields on loans.

The recovery in the primary equity market presented corporates with an opportunity to tap equity funds to strengthen their balance sheets.

Equity mobilisation (at over Rs 7,000 crore till February 2004) was more than double that of the previous year.

A strengthening rupee also enabled corporates to take advantage of low cost foreign currency borrowings.

According to the report capital investments are expected to pick up, especially in power, metals and telecom sectors.

Steadily improving capacity utilisations across all parts of the industrial economy and an improving environment for raising funds are expected to result in increased industrial investment in financial year 2005. The capital expenditure of 18 large crisil rated clients was likely to be about Rs 25,000 crore in 2004-05.