Sales growth of IT companies decline 5.9%, after double-digit growth for 9 years: RBI

Sales growth of information technology (IT) companies has come down to 5.9 per cent year-on-year after posting double-digit growth for nine consecutive years, the Reserve Bank of India said in its latest Financial Stability Report.

“IT majors have significantly lowered their guidance on revenue growth,” the RBI said. According to the apex bank, the rising profile of short-term debt in total borrowings appears as a potential risk from redemption pressures in 2024 and 2025, its share in corporate balance sheets remains low.

The RBI added further that healthy balance sheets and stable financial conditions provide additional comfort.

Talking about non-financial corporates (NFCs), the RBI said the material improvement in the balance sheets of listed non-financial corporates (NFCs) and their high profitability have been supported by business and financial restructuring over the years.

According to RBI, the NFC debt to GDP ratio in India has been lower than advanced economies, emerging markets, and developing economies peers since 2011-12.

Highlighting the factors that contributed to the relative stability of NFCs in the current tightening cycle, the apex bank said, “First, corporates entered the current cycle with robust financials. Second, relative to AEs, the size, and length of monetary tightening in India have been moderate.”

RBI went on to add that the low level of debt in their corporate capital structure allows Indian NFCs to operate with low-interest expenses, which has also been moderated in Q2 of 2023-24. Finally, the interest-coverage ratio (ICR) of listed private. “NFCs have improved, supported by strong operating profits,” the report read.

The report highlighted that despite the lagged impact of monetary tightening on funding costs, the debt service ratio of NFCs in India has declined by 1.3 percentage points from its mean level (between 2007 and 2023). “This, alongside lower leverage augurs well for NFCs’ ability to mitigate the impact of interest rate risks on their financials,” RBI added.

As per the RBI report, capital investment by listed private NFCs improved further: the share of fixed assets to total assets has improved to 34.6 per cent in H1:2023-24 from 33.6 per cent in the first half of the previous year.