Business Bureau,

Domestic ratings agency India Ratings recently said stress in the corporate sector has “plateaued”, but new project investments are unlikely to revive in fiscal year 2019-20.

The capex growth will come at 6.5 percent in FY20, and a majority 70 per cent of it will be for maintenance purposes, its Associate Director Soumyajit Niyogi said. He said companies in the auto ancillaries space and oil and gas may see some investments in the upcoming fiscal and added that the higher capacity utilisation cannot be the only gauge on when to expect a revival.

It can be noted that some analysts have been saying that a revival in capital expenditure is due, given the higher capacity utilisation and call out the outcome of the upcoming general elections which will determine the sentiment.

Niyogi said the elections will not impact credit markets by a large degree because of the institutional reforms like FRBM (fiscal responsibility and budget management) Act, GST framework and RBI’s rate setting panel being already in place. He said despite any possible political changes, the direction of the economic policies will not change. The agency said the number of downgrades have outnumbered the upgrades in FY19 till now, primarily due to commodity prices and liquidity-related troubles.

Capital flows into the country will continue to be volatile for much of the year due to both global and domestic factors, it said. When asked about promoter pledging of shares, and if episodes of concerns with a few names will continue, he declined to give a direct answer, but said that promoters' skin in the game has gone down in the last few years, going by the equity they have got in.

For FY20, there will not be a major improvement in the liquidity positions and working capital for a majority of corporates, even as some sectors like metals and steel can witness some improvement, Niyogi said.

On the corporate stress, the agency said at an aggregate level, the stress has “plateaued”with a majority of the stress “crystalised”. It said a major relief from the insolvency resolution process is unlikely as the law matures. Banks will have to take steep haircuts for companies in a few select sectors, it said.