India’s top 200 companies to outperform China’s: S&P

The Dollar Business Bureau

The top 200 companies of India are set to outperform their counterparts in China despite infrastructure bottlenecks in the country, revealed a report by Standard & Poor’s (S&P) Global Ratings on Tuesday. 

“Our analysis of India's top 200 companies by market capitalisation against their Chinese counterparts shows that government influence is far greater for listed companies in China than in India,” said Mehul Sukkawala, Credit Analyst at S&P Global Ratings.

‘This directly impacts the firms’ flexibility to cut capital spending, which normally results in weak profitability, and eventually displayed in more leverage,” he said. 

In India and China, there is a significant difference in the size of their private sectors. Private firms account for around 75 percent of the net debt and EBITDA (earnings before interest, taxes, depreciation, and amortisation) of the top 200 companies of India as compared to the top Chinese companies, account for less than 20 percent. 

The private companies in India outperform the government-related entities (GREs) in India as well as companies in China by witnessing the highest and relatively steady returns. 

Leverage is at its highest for overall Indian firms but keeps rising for Chinese GREs. Simultaneously, India faces the threat of concentration of debt. 

According to the report, around 15 percent of the firms in the survey make up for 60 percent of the net debt. India is also suffering from an environment of higher interest rates as compared to other emerging economies of Asia. This has decreased the debt servicing ability of India’s leveraged firms, resulting in financial stress. 

S&P said that the performance for top companies of India, with regard to their revenue growth, is likely to improve in the coming 2-3 years. On the other hand, the revenue growth for firms in India as well as China has been showing a downward trend. 

The poor infrastructure is one of the biggest hurdles, affecting the ambitious ‘Make in India’ scheme of the Indian government, it added.