Fitch Ratings has said volume growth of domestic corporates, particularly in the auto, construction and realty sectors, will slow down in the second half due to the tight monetary and high inflationary situation.
“Sectors like autos and auto ancillaries, real estate and construction are expected to be impacted over the next 12-18 months when it comes to sales growth. But moderation in credit growth will remain within our tolerance zone, and is unlikely to have a rating impact,” Fitch said in a report.
Despite this, it has maintained its stable outlook for the corporate sector as a whole, as in the beginning of 2011. On the other hand, the outlook for the auto ancillary and retail sectors has been revised downward to stable from stable-positive due to the above factors. Further, outlook for the textile yarn sector has also been revised to negative from stable-negative to reflect the double impact of a drop in yarn prices and high cost cotton. It has also maintained negative outlook on cement, shipping and state-run telcos.
Significantly, Fitch has not seen any visible slowdown in the capex plans of most large corporates, despite high interest rates and the risk of lower demand. “In fact, most large corporates have been moving away from a policy of liquidity preservation to liquidity deployment, in certain cases by acquiring overseas assets,” the report said.
“Regulatory and political risks can have a significant impact on the overall investment climate,” it added. On the global front, the agency said continuing uncertainty over the euro zone debt and the US slowdown can also potentially change the investment climate.
“Owing to the continuous risks of high inflation and global uncertainty, Fitch believes there is a chance that the number of downgrades could outpace upgrades over the rest of the year, especially if systemic liquidity becomes tighter than currently expected,”the report concluded.
