Rupee could rebound to Rs.60/$ by March 2014: CRISIL

Agriculture lift for GDP ahead, demand slowdown biggest stress factor, and the economy will stay in L-shaped trajectory

September 11, 2013 1:20 IST | India Infoline News Service
CRISIL today released its first ‘State of the Nation’ report, a unique top-down-meets-bottom-up analysis that offers a holistic perspective on the economic state of India.

The study strings together deep analyses from the micro to the macro level. It uses granular data on 2,481 companies that CRISIL rates as investment grade; these account for 32% of banks' corporate lending.

It leverages CRISIL’s industry research spanning more than 70 sectors. Finally, the analysis has a strong overlay of CRISIL’s macroeconomic research capabilities and profound understanding of risk.

The report flags concerns, disproves some perceptions and throws light on key positives.

Roopa Kudva, Managing Director & CEO, CRISIL, said: “In the current environment, we thought it was important to present a comprehensive analysis that is objective and fact-based. This study draws on the wealth of data and information in CRISIL, and our wide-ranging and deep analytical perspectives.”

Some highlights of the report are:
1. Agriculture is set to surprise on the upside because of a bountiful and well-distributed monsoon. Farm GDP growth could more than double from last year’s 1.9% to 4.5%. This will help check food prices and support rural consumption.

2. Forex volatility is the least of the sources of stress for 2,481 companies CRISIL rates as investment-grade (BBB- and above). It affects only 6% of them.

3. What stresses nearly a quarter of the companies analysed is the demand slowdown. Two out of three sectors will see a decline in revenue growth. The collapse of the investment cycle will severely dent infrastructure, capital goods, automobiles and real estate sectors.

4. Larger firms with operating income over Rs.1,000 crore are more severely impacted by higher levels of indebtedness and increasing stress on financing cost. “Stretched working capital cycles are aggravating liquidity pressures on companies. Overall, liquidity pressures are a source of stress for 16% of the companies analysed; but for larger firms it is higher at 27%,” Kudva pointed out.

5. Rupee depreciation has increased India’s currency competitiveness. “The rupee could rebound to Rs.60/USD by March 2014 as the current account deficit declines to 3.9%, but the currency will remain significantly depreciated compared with last fiscal,” Kudva said. Hence, export-linked sectors such as IT-ITES, pharmaceuticals, textiles, readymade garments and cotton-yarn spinning will do well. Separately, the farm fillip and pricing power will help the tractor and telecom sectors, respectively, to do well.

6. Services, which have been the bulwark of the economy for several years, will grow at just 6.5% this fiscal compared with the nearly 10% through the last decade.
CRISIL’s GDP growth estimate has been reduced to a decade-low of 4.8% for 2013-14. “With luck, if agriculture surges 6%, it could push overall GDP growth to 5.2%,” she said. What the above analysis adds up to is that the economy will stay in L-shaped trajectory through this fiscal, unlike the V-shaped recovery seen after the Lehman crisis in 2008.

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