Profits of India Inc. to rise 2.9% in FY25 from FY23 levels: Fitch

India's robust economic growth will boost demand at corporates, despite weakness from slowing growth in key overseas markets, according to Fitch Ratings.

This, and easing input cost pressure, should boost profits in the financial year ending March 2025 by 290 basis points above FY23 levels, helping corporates maintain adequate rating headroom, despite higher capex.

"We expect India to be among the world's fastest-growing sovereigns, with resilient GDP growth of 6.5% in FY25 (FY24F: 6.9%). Demand will remain strong for cement, electricity and petroleum products, with high frequency data in 2023 sustained at well above pre Covid-19 pandemic levels," says Fitch.

India's rising infrastructure spend will also boost steel demand. "Car sales will continue to rise, despite our expectation of moderation after a robust growth in 2023," the rating agency says.

Slowing demand in the U.S. and Europe is likely to moderate sales growth for IT services, but a corresponding easing of employee attrition and wage pressure should underpin higher profitability and solid rating headroom at rated IT services companies, says Fitch.

Rising demand will help maintain industry balance in cement and steel sectors, despite a faster pace of new capacity additions, the rating firm says.

Refining margins at oil marketing companies are likely to stay above mid-cycle levels in the near term, while lower crude oil prices after FY23 should support marketing profitability, as per Fitch Ratings.

Margins at India's top two telecommunication companies will continue to benefit from ongoing industry consolidation, the rating agency says.

"We believe India’s structural demand visibility, supply-side reform by the government and healthier corporate and bank balance sheets will enable a further increase in capex across most sectors following an uptick in FY23," says Fitch Ratings.

This comes days after the Reserve Bank of India’s monetary policy committee increased India’s gross domestic product (GDP) growth estimate for FY24 to 7% from 6.5% earlier. The October-December quarter economic growth is now estimated at 6.5% from 6% earlier, while the January-March quarter real GDP could grow 6%, up from 5.7% projected earlier. India's gross domestic product grew 7.6% year-on-year in the July-September quarter, higher than the monetary policy committee's forecast of 6.5%.

“Against this unsettled global economic backdrop, the Indian economy presents a picture of resilience and momentum. The real gross domestic product (GDP) growth for Q2 of the current financial year has exceeded all forecasts. The fundamentals of the Indian economy remain strong with banks and corporates showing healthier balance sheets; fiscal consolidation on course; external balance remaining eminently manageable; and forex reserves providing cushion against external shocks,” RBI governor Shaktikanta Das said while reading the monetary policy statement earlier this month.

Das expects private consumption to gain support from gradual improvement in rural demand, strengthening of manufacturing activity and continued buoyancy in services. “The healthy twin balance sheets of banks and corporates, high capacity utilisation, continuing business optimism and government’s thrust on infrastructure spending should propel private sector capex. The drag from external demand is also expected to moderate with a turnaround in merchandise and services exports,” he said. “The protracted geopolitical turmoil, volatility in global financial markets and growing geo-economic fragmentations, however, pose risks to the outlook,” he added.

Real GDP growth for Q1 FY25 is projected at 6.7%; Q2 at 6.5%; and Q3 at 6.4%.