S&P Global Ratings says that Indian companies are set to outperform Chinese peers

Mumbai: US based credit ratings and research company S&P Global Ratings said that top Indian companies are set to outperform their Chinese peers driven by increased spending by the Indian government through the 'Make in India' programme and improvement in the transportation sector despite the infrastructural bottlenecks. While Chinese companies might get bogged down with government influence and increasing credit risk.

However it has warned against high interest rate environment in India and high levels of debt for the government which could restrict the growth momentum of the country.

"Our analysis of India's top 200 companies by market capitalization against their Chinese counterparts shows that government influence is far greater for listed companies in China than in India," said Mehul Sukkawala, credit analyst, S&P Global Ratings. "This directly affects companies' flexibility to reduce capital spending, generally results in weaker profitability, and eventually shows up in higher leverage."

The ratings company said that Indian private companies outperform their Chinese peers as well as Indian Government related entities by registering the highest returns. Just putting a warning point the report said, "India faces the risk of debt contraction because 15% of the top 200 companies account for 60% of the net debt and coupled with a high interest regime compared with other emerging Asian economies might result in companies facing financial stress".

The report has identified 2 major factors that can prevent India from converting into a global manufacturing destination as power and transportation infrastructure. However it also mentions improving capacity of power generation and robust infrastructure development can provide a boost to sectors like steel, cement, auto, and real estate.

The report talks about how capital expenditure having peaked in both India and China and companies are reconsidering new capacity expansion plans. But they will continue pushing for projects that are already underway.
"The credit cycles in India and China are at different stages. More importantly, we see them moving in opposite directions," said Sukkawala. "The credit risk has peaked in India and will only lessen from here on, whereas in China, it will increase over the next two to three years with excess capacity eroding profitability."

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.