Domestic ratings agency India Ratings and Research today said external risks are likely to make the upcoming FY17 a "challenging" year and pre-tax profit growth for top companies is unlikely to hit the double-digit mark.
The agency in its outlook for 2016-17 said the fiscal will "remain a challenging year for corporate India... external risks could derail fragile recovery."
It estimated that pre-tax profits of the top 500 corporate borrowers to grow by 7-9 per cent and added this is unlikely to reduce leverage levels, particularly for the companies operating in the commodity-linked and capital-intensive sectors.
The agency attributed the muted estimate on corporate earnings to the government's focus on consolidation of the fiscal deficit.
Elaborating on external risks, it said currency volatility, slowing down of China's growth, foreign funding and the demand environment are among the biggest factors.
The external environment, coupled with the lower nominal GDP growth can also impact credit quality, it said.
Achievement of Government's target of 11 per cent nominal GDP growth can provide some help to India Inc, but that rests on a "significant pick up" in public investments and consumption, it said.
On investment revival, it said corporates are unlikely to take up new commitment in FY17 on credit conditions which are weaker than the previous fiscal.
The private sector capex is unlikely to pick up before FY19, it said, adding that the trend of a fall which started in FY12 is likely to continue on low capacity utilisation, sluggish demand and high leverage.
It said because of the high NPAs and the capital constraints faced by banks, solvent entities will also be hit by "credit rationing" that is likely to happen.
On a sectoral basis, it said the US and Europe-focussed pharma, auto and textiles will have moderate volume growth, while IT will also benefit on incremental spending, it said.
Gems and jewellery exports are likely to be subdued given the discretionary nature of the spending, it added.
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