A complex interplay of geopolitical events, stubbornly high inflation – and sharp hikes in interest rates to counter it – have made the global environment more gloomy, the rating agency added.
Nationally, the peak effect of rate hikes — 250 basis points since May 2022, which have pushed rates above pre-Covid-19 levels — will materialize in fiscal 2024, according to a statement from CRISIL.
CRISIL said consumer inflation is expected to moderate to an average of 5 percent in fiscal 2024 from 6.8 percent in fiscal 2023, reflecting the high base effect and some decline in crude oil and commodity prices. A good Rabi harvest would help cool food inflation while the slowing economy should dampen core inflation.
With the ongoing heatwave and the World Meteorological Organization’s prediction that an El Nino warming event is likely in the coming months, inflation risks are tilted to the upside.
Amish Mehta, Managing Director and CEO of CRISIL said: “India’s medium-term growth prospects are healthier. Over the next five fiscal years, we expect annual GDP growth to be 6.8 percent, driven by capital and productivity gains. What is also good to see is the increasing sustainability footprint of capex (investments).”
Mehta said nearly 9 percent of infrastructure and industrial investment is green. “We expect that number to increase to 15 percent by fiscal 2027. Later, the impact of climate risk mitigation will be felt on revenues, commodity prices, export markets and capital spending.”
Larger-scale capital investment by the government and expected new ones by the private sector will drive medium-term growth, while digitization and efficiency-enhancing reforms will increase the productivity contribution, CRISIL said.
CRISIL said: “We expect the economy to continue to derive efficiency gains from structural reforms such as the Goods and Services Tax and the Insolvency and Bankruptcy Act. Better physical infrastructure will improve connectivity and reduce logistics costs for industry, while digital infrastructure will bring efficiencies by serving as a platform for innovation and efficient payment systems.”
Dharmakirti Joshi, CRISIL Chief Economist, said: “India’s external vulnerability is expected to decrease with a lower current account deficit (CAD) and modest short-term external debt. While the CAD is expected to contract from an estimated 3 percent ($100 billion) this fiscal year to 2.4 percent of GDP ($88 billion) next fiscal year, its funding could face challenges as foreign portfolio flows remain volatile and external commercial loans are less attractive.”
Regarding India Inc, CRISIL said that despite a global slowdown and interest rate hikes, revenue growth is expected to be in double digits in fiscal 2024, analyzing 748 listed companies from fiscal 2011 (excluding the oil & gas and banking & finance companies ). service and insurance sectors).
This is being driven by sales growth of 10 to 12 percent in the non-commodities sectors, even if commodity prices remain benign. Importantly, this will follow a 16 percent to 18 percent year-over-year increase in revenue in fiscal 2023, following the rise in commodity supercycles in fiscal 2022, the rating agency said.
According to CRISIL, revenue growth in fiscal 2023 was led by an estimated 18-20 percent year-over-year increase in non-commodities segments, with commodities posting weak growth of 5-7 percent from a strong base.
Operating margin is expected to improve by 120 to 170 basis points in fiscal 2024, supported by three factors — favorable commodity prices, the full impact of price increases implemented in fiscal 2023, and volume growth, she added.
In fiscal 2024, margin expansion is expected to be broad-based, with margin improvements across all Sectors as falling commodity prices drive down costs while volume expansion boosts sales.
CRISIL said while government policies would continue to drive industrial investment and new-age opportunities, infrastructure spending would drive overall investment growth of 12 to 16 percent in the next fiscal year.
It added that this consists of achieving nearly 75 percent of original targets set under the National Infrastructure Pipeline by fiscal 2025.
Suresh Krishnamurthy, Senior Director, CRISIL Market Intelligence and Analytics said: “Total industrial investment will increase to almost Rs 5.7 billion on average between FY2023 and FY2027, compared to Rs 3.7 billion over the last five financial years . Almost half of this additional capital spending will be driven by the Production-Linked Incentive (PLI) program and New Age sectors.”
Hetal Gandhi, Research Director, CRISIL (MI & A), said: “In terms of domestic demand, urban income growth and payments to government employees are expected to outpace rural incomes again in FY2024. This would continue to skew consumption towards premium products and fuel the two-tier recovery underway.