S&P warns India Inc of high inflation

Expressing concern over high debt exposure of many companies in India, global rating agency Standard & Poor's on Tuesday warned India Inc that high oil prices can trigger inflationary pressures, trim corporate profits and slow down industrial activity.

In a joint report, 'Indian Top 50 Corporates', Standard & Poor's ratings services and its Indian subsidiary Crisil found that many companies borrowed more to finance expansions despite robust cash flows from positive economic factors.

Indian companies could still face challenges such as low foreign direct investment, inadequate infrastructure, ineffective legal and regulatory processes, and heavy reliance on the agricultural sector, S&P said.

"In addition, oil prices, remain a critical supply side worry, as this can trigger inflationary pressures, trim corporate profits and consumption, and slow down industrial activity," said Crisil economist Subir Gokarn.

Commenting on debt exposure on Indian firms, S&P credit analyst Greg Pau said, "Of the 50 companies studied, 24 companies increased their debt by more than 10 per cent to finance expansions in the past two years."

"Only 16 companies took advantage of strong cash flows to lower their debt burden by more than 10 per cent," he said.