India’s economic growth sparks optimism as corporates anticipate profit surge

Fitch Ratings forecasts a significant uptick in the profitability of Indian corporates, propelled by the country’s robust economic growth.Despite challenges stemming from sluggish overseas markets, India’s resilient GDP growth, projected at 6.5 per cent in the financial year ending March 2025 (FY25), positions the nation among the world’s fastest-growing sovereigns.

The anticipated economic expansion is expected to fuel demand across various sectors, contributing to a substantial increase in profits.Fitch Ratings predicts a profitability surge in FY25, projecting a 290 basis points improvement compared to FY23 levels.This surge, coupled with easing input cost pressures, is poised to provide Indian corporates with ample

rating headroom, mitigating concerns related to higher capital expenditures.Key sectors poised to benefit from India’s economic momentum include cement, electricity, petroleum products, and steel. High-frequency data for 2023 indicates sustained demand well above pre-COVID-19 pandemic levels.The country’s intensified infrastructure spending is set to drive steel demand, while a buoyant automotive sector is expected to maintain growth despite a projected moderation after robust expansion in 2023.

In the realm of information technology (IT) services, while the slowdown in demand from the US and eurozone may temper sales growth, Fitch Ratings anticipates an offsetting effect.
Easing employee attrition and wage pressure within the IT services industry should bolster profitability, ensuring a solid rating headroom for rated companies.Oil marketing companies are likely to experience sustained refining margins above mid-cycle levels in the near term.Lower crude oil prices post-FY23 are anticipated to support marketing profitability, offering a positive outlook for the sector.

Additionally, the ongoing consolidation within the telecommunications industry is expected to contribute to healthy margins for India’s top two telecommunication companies.Fitch Ratings remains optimistic about India’s structural demand visibility, emphasizing the government’s supply-side reforms and the improved health of corporate and bank balance sheets.

This positive backdrop is seen as a catalyst for increased capital expenditure across various sectors, building on the momentum initiated in FY23.As India charts its economic trajectory, the anticipated surge in corporate profitability signals a promising landscape for the nation’s business landscape.