Moody's expects India's GDP growth to remain weak at 5.5% in the fiscal year ending March 2015, as elections in mid-2014 will delay reforms needed to revive the economy.
Moody's also expects heightened expectation of a scale back of quantitative easing by the Federal Reserve in 2014 to keep the Indian Rupee volatile, making the operating environment more challenging for importers and exporters.
Companies will also face higher borrowing costs and tight funding conditions with monetary policy likely to remain tight. Moody's could move to a stable outlook if its GDP growth expectations exceed 6%, the rupee stabilizes -- such that one-year volatility falls below 5% -- and a development and reform-focused government is formed with a strong majority.
Moody's expects Indian exploration and production companies to continue their acquisition spree to secure the country's energy needs, but see substantial headroom under their current ratings for further buys.
A near doubling of gas prices from April 2014 will lift upstream revenues, with Oil and Natural Gas Corporation seeing the largest boost. However, the fuel subsidy burden on the upstream companies may remain high, despite an expected decline in total fuel subsidies. Moody's outlook for the sector is stable.
The outlook is negative in the refining and marketing sector, where Moody's expects refining margins to stay weak and for companies to suffer delays in subsidy reimbursements due to the mid-year elections.
Meanwhile, the weaker rupee has improved competitiveness for the IT/business process outsourcing sector, where its sector outlook is stable.
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Moody's outlook is negative for the steel, metals and mining sectors, where it expects the weak economy and capacity expansions to weigh on steelmakers' margins and utilization rates.
Moody's also has a negative outlook for the automotive sector, as it expects demand to remain weak. And finally, Moody's outlook is stable for the telecommunications sector, where it expects average revenue per user and EBITDA margins to improve.
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