Indian corporates' large capex to need offshore funding amid steady economic growth

New Delhi: Indian corporates' large capex will need to rely on offshore funding despite improving domestic liquidity and companies’ earnings growth, a new report showed on Wednesday.

As per Moody's report, capacity expansion, inorganic growth, refinancing and working capital needs, along with shareholder payments, will keep capital requirements high for non-financial corporates in India.

"While India's domestic liquidity and companies’ internal cash flow can largely cover their capital needs, offshore funding will remain key despite its share reducing to 12 per cent of India Inc's total funding due to its higher costs and rising domestic liquidity," said Vikash Halan, a Moody's Managing Director.

The report also mentioned that Indian corporates have the capacity to incur additional debt to meet funding needs. Over the past decade, the corporate sector has steadily cut debt to 55 per cent of GDP from 72 per cent while leverage has remained stable.

Meanwhile, ICRA, a Moody's affiliate in India, noted that the Indian corporate sector saw steady business momentum in the fiscal year (FY) ended March 31, 2024, supported by both consumption and investment activity.

Still, rural areas have so far faced subpar monsoons and inflationary trends that have dampened consumption.

Conversely, urban-focused businesses such as residential real estate, hospitality, airlines, jewellery and automobiles have continued their robust momentum, the report noted.

"Despite the likely higher debt, India Inc. will continue to report stable credit metrics due to stabilising inflationary pressures and a steady interest rate regime. The forecast of a normal monsoon season should support a nascent recovery in rural markets," said K. Ravichandran, ICRA's Chief Ratings Officer.

ICRA expects the pace of private sector capex to be moderate in the first half of FY2025 due to the likely pause in infrastructure activities before the general elections.