"India's Domestic Business Cycle and Energy Security Offer Optimism for Investors in 2023"
-Soumyajit Niyogi,Director, Core Analytical Group India Ratings & Research (Fitch Group)
"Deleveraging, Softening Commodity Prices, and China+1 Outsourcing to Benefit Corporates"

Intro: As we look ahead to the next financial year 2023-24, the corporate sector in India is poised for consolidation and stabilization. However, Soumyajit Niyogi, Director, Core Analytical Group, India Ratings & Research (Fitch Group) analyses that EBITDA margins in most sectors may remain under pressure due to decelerating aggregate growth. On the other hand, speaking to senior journalist Mahima Sharma, Mr Niyogi is of the view that India's domestic business cycle and energy security offer optimism for investors, despite the potential risks from softening export demand and tightening global liquidity. Indiastat sat down with Mr Niyogi for an exclusive discussion under Socio-Economic Voices to discuss the key risks and positives for 2023 and the potential impact of another wave of COVID-19, if any, on the Indian economy.

MS: The corporate universe, both the businesses as well as the manufactures. What are the takeaways from 2022 and what is the look ahead for the next financial year?

SN: Corporates continue to benefit from their significant deleveraging with consolidation in market shares by large entities, softening commodity prices and benefits of China +1 outsourcing. However, EBITDA margins in most of the sectors are likely to remain under pressure owing to decelerating aggregate growth.

The Indian large corporate sector in general is in a position to withstand the headwinds emanating from the expected softening in export demand, sustained cost pressures, tightening global liquidity and sharp rise in interest rates. Entities which inherently have high leverage and/or structural issues could experience liquidity stress, although these are likely to be contained to a small proportion.

MS: Markets are seeing bulls and bears in parallel. What are the key risks and key positives that you see ahead for 2023?

SN: India's domestic business cycle is on the upward trajectory, which had bottomed out before the Covid-19 outbreak. Optically this spreads reasonable optimism to the investors. In addition to this, in spite of heavy dependence on imported crude oil, India is better positioned in terms of energy security owing to domestically sourced coal-based power supply.

Globally and domestically, the expectations of softening inflation and moderating demand growth have been the key assumptions for the financial markets. While the growth moderation is more certain, elevated inflation is still a known-unknown risk. Drivers of inflation are still active, especially supply-side and energy dynamics owing to the geopolitical turmoil. Moreover, unlike the last two years, China has started opening up with intention to propel growth. And this could turn out to be a boom for commodity prices including crude oil, therefore renewed fear of commodity inflation.

Currently, Inflation in India is more to do with global commodity prices rather than domestic business cycle or driven by a strong aggregate demand. A renewed risk of inflation could turn out to be a tectonic shift from the current investment environment.

MS: What do you think India must be prepared for economy wise if yet another wave of COVID-19 hits the nation? What should be the strategy in advance?

SN: This is a known - unknown risk, we don’t know how severe that could turn out to be. By and large corporations have learned and adapted to operate amid pandemic. But another round Covid-19 outbreak would be daunting for the economy as well as for the society, though industries are well equipped to handle less severe restrictions.

I think this will be a bigger challenge for the policy makers. That will complicate both the monetary as well as fiscal policy making. In case if the outbreak is worldwide, then there could be coordinated efforts, and likelihood of falling commodity prices will create room for policy easing.

MS: You recently shared on your social media that 'Economy is Meditating' and we can avoid calling it recession or slowdown. Please break this down for the masses' better understanding

SN: Meditation brings calmness, stability in mind and helps to consolidate thoughts, in a nutshell it reinvigorates inner strengths. For an economy, sometimes it is essential to consolidate and bring stability rather than pursuing higher growth, especially when the macroeconomic balances (stability in general price level, external balance and fiscal condition) are facing multiple headwinds. Current macroeconomic conditions are no less challenging, especially external conditions. Amid these adversities, chasing high growth could destabilize inflationary conditions along with risk of stoking external imbalances. And the state of global economic conditions is also unstable, especially monetary conditions in the US and rising expectations of Chinese growth. Therefore, it is good to have measured growth this year. By not pursuing high growth in the short term, it can ensure stability in the economy. At the same time, continuing policy initiatives to augment domestic production frontier will solidify India’s position in the medium to long term.

MS: What does economic slowdown in China mean for India-- pls share this in totality, if possible with statistics? And also, pls add will India be on the verge of the financial situation Sri Lanka faced or Pakistan is facing? If not, why?

SN:SN: Let me answer each part of the question separately. Coming to part one, if China doesn't grow, there could be an impact on export volumes for Indian steel, textile, cotton and base chemicals (20%-30% of exports going to China) in the near term. In the past 10 years, India's imports have increased threefold to USD 90 billion and exports 1x to USD20 billion. Imports include electronics, telecom and organic chemicals, on the other hand exports are backed by upstream products such as chemicals, metals and mining.

On the other hand, import risks for large upstream players will rise as the anti-dumping duty has been withdrawn from some sectors including steel, viscose and purified terephthalic acid. The same can lead to a volume surplus in commodities, triggering a correction in the commodity prices. Also, some of the key global commodities are traded at import parity prices, largely mimicking Chinese export prices.

For export opportunities, India will need to ramp up its production capacity by multiple times to cater to the additional demand coming out of the Chinese production slowdown, which could happen gradually. For example, China accounts for around half of the global textile apparel exports, and India roughly 5%. India can compete with China on grounds of differentiated trade barriers in some markets, costs, compliance and policy support in segments including steel, auto-ancillary, pharma active pharmaceutical ingredients and specialty chemicals.

Answering the second part of the question, India is much better placed in terms of external vulnerabilities. This type of crisis has been faced by many emerging economies in the past, including India in the 90s. Given most of the emerging economies are dependent on imported Oil, during the crisis period both current account and capital account turns unsustainable. After the crisis in early 90s, India did well in promoting the ITES industry and from then on, an average export from ITES has been the support to cover our import bill.

MS: India already has a digital currency in the form of UPI transfers. Does it make any sense to launch a digital currency separately? What are the advantages and threats?

SN: UPI and digital currency are not the same. Currency is a facilitator for a transaction, and UPI is one of the mechanisms to exchange currency between two parties. Whereas, digital currency is another facilitator for transactions, where bank is not needed. I think it is too early to shift focus on digital currency.

I am more encouraged by the massive changes happening at the financial inclusion level. Fintech is playing a big role in providing easy access to credit to almost every corner of the society with tailor made products. The growth in AUM shown by the retail (including micro and small entities) NBFCs in the last five years is commendable. From microfinance to personal loan, from affordable housing finance to supply chain financing through platform, the symbiotic development between technology-innovation and finance is very encouraging. This has made easy access of loans at a competitive rate to every borrower based on merit. It is true that this ecosystem has to undergo multiple cycles for seasoning. The easy and cheap access to credit could break the vicious cycle at the bottom of the pyramid.

MS: How can India create more jobs in the govt as well as private sectors. Please explain this under the threat of AI, fast taking over manual intelligence.

SN: This is a big challenge; one side demography is peaking up and another side looming risk of jobless growth. Indian Start-ups are doing good jobs, but by and large they are replacing existing practices by bringing new solutions or creating platforms for aggregation. This will act more as an enabler, rather than mass job creation.

Good part is, the corporate balance sheet has improved in the last two years, ROE has improved too. Strong corporate balance sheet has further been complemented by various incentive schemes to boost production, especially targeted PLI schemes.

I believe, propelling broad-based domestic consumption by way of income redistribution would pave the way for Capex spending, and job creation.

MS: In the wake of the US recession and elevated Fed rates, do you think the US will be looking at India and developing economies?

SN: All monetary policy makers do consider global economic conditions including emerging economies. But the condition in the emerging economies is in general not the guiding factor for FED, except China. Prospect of growth revival in China will be a critical factor for global commodity prices, including oil. If China demonstrates better than expected growth, the FED could become hawkish.

Recession in the US, even though temporary, would have adverse effects on emerging economies, as the US is one of the largest importers of goods and IT services and also supplier of global capital flows. India could benefit from soft commodity prices in case US growth remains tepid. The tricky condition is if the US is not growing but China starts surprising with better growth. In that case commodity prices will get a next round of boost and FED could turn out to be more hawkish. Consequences of such a combination will have more adversities for both debt and equity markets..

MS: Banks are a very fast burgeoning sector in India. Do you see any risks in this sector, which the borrowers should be aware of (businesses and well as masses)?

SN: Domestic banking sector has been demonstrating strong performance in terms of waning legacy asset quality issues, strengthened balance sheets, manageable covid-19 impact and expectations of improved profitability across the banking sector.

However, the key challenges that a bank could face is garnering deposits. Concentration of retail deposits is the key challenge; especially when the metro population is shifting to other investment avenues. However it is true that the deposit will remain in the banking system, but the nature of deposit will change.

As a borrower, the challenge is the volatile interest rate regime. Now the retail loan is linked to external benchmarks, and monetary policy transmission has turned faster and efficient. With the unstable economic condition globally, interest rate is expected to remain volatile. Therefore, the volatility of interest rate could become challenging for the retail borrowers, this will have an impact on the purchasing power and consumption decision.

MS: ESG - govt of India has launched the green bonds. What's your take on the same? Pls share an overall view and vision.

SN: It will be a good framework for private green bond issuances in terms of transparency, timely disclosure of information on use of proceeds, selection of projects, management of proceeds and third-party evaluation. I do not expect any meaningful pricing benefit to accrue to the issuers in the initial stages, it could over a period of time attract a larger set of investors and reflect in pricing benefits. These instruments raised on the balance sheet carry a similar credit risk to the other debt and any benefit to green issuances has to ultimately reflect in a favorable demand supply position but more importantly would also need regulatory push and policy incentives.

MS: The government of India has launched the Production Linked Incentive (PLI) Scheme in 14 sectors in line with India's vision of becoming 'Atmanirbhar'. What are your comments and suggestions on this?

SN: Progress on implementation of the policy has been uneven across sectors. While some sectors like electronics and Solar saw strong interest and timely policy decisions; other sectors such as Speciality Steel witnessed persistent delays. In a nutshell, the government has been actively tweaking policy contours to factor in revised global market conditions and industry demands. PLI-1 could be the start of the process, which may get followed up with several policy tweaks. Benefits of such measures would be back-ended and may not be visible in the immediate future. Nevertheless, making the Indian manufacturing sector future-ready is a step in the right direction.

(The views expressed here are his own and may not reflect those of the organization)


Mr Niyogi has over one and half decade of experience in the financial system. The areas of expertise vary between managing institutional investment, handling interest rate strategies, forming macro strategies and credit research. Association with institutions includes SBI Group, world’s second largest Hedge Fund D E Shaw and globally reputed rating agency Fitch. His core area of interest is financial market microstructure and monetary policy transmission in the financial system; also having rich experience in evaluation of corporate credit and linkages with market microstructure. Other areas of operation are analyzing banking system liquidity and corporate balance sheet liquidity.

About the Interviewer

Mahima Sharma is a Senior Journalist based in Delhi NCR. She has been in the field of TV, Print & Online Journalism since 2005 and previously an additional three years in the allied media. In her span of work she has been associated with CNN-News18, ANI - Asian News International (A collaboration with Reuters), Voice of India, Hindustan Times and various other top media brands of their times. In recent times, she has diversified her work as a Digital Media Marketing Consultant & Content Strategist as well. Since March 2022, she is also an Entrepreneurship Education Mentor at Women Will - An Entrepreneurship Program by Google in Collaboration with SHEROES. Mahima can be reached at

Disclaimer : The opinions expressed within this interview are the personal opinions of the interviewed protagonist. The facts & statistics, the work profile details of the protagonist and the opinions appearing in the answers do not reflect the views of Indiastat or the Journalist. Indiastat or the Journalist do not hold any responsibility or liability for the same.

indiastat.comFebruary, 2023
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