Indian debt investors worried over interest rates: Fitch

Investors have displayed surprising resilience in their growth expectations and the pace of credit recovery.

Accordiong to Fitch Ratings' Fixed Income Investor Survey of Senior Investors, August 2010, slow recoveries in the US and a renewed bout of risk aversion following the sovereign debt crisis in Europe have failed to derail investor sentiment towards India.

It said that investors have shown a very positive sentiment in this year's survey, which reflects optimism in the prevailing Indian market conditions.

Adding to the positive sentiment of investors is the belief among 60 per cent of the respondents that the worst of the market disruption is over.

Investors have continued to remain constructive on the Indian corporate sector, although opinions surrounding corporate fundamentals, spread performance, and issuance are tamer than one year ago. Investors approve the Indian government's support for infrastructure and expect a larger volume of issuance from this sector", says Amit Tandon, managing director, Fitch Ratings India.

Highlights:
According to the investors, there will be an increase in the deployment of corporate cash in 2010. 50% of investors see more cash being used for capex. Other areas include mergers and acquisitions (33%) and debt repayment (25%).

• Fixed income investors have attributed inflation and rising interest rates (94%) as the single greatest threat to Indian debt markets, followed by global sovereign issues (66%) and India's budget deficit (64%).
• Security concerns (43%) in India were also a notable threat to the growth in the market.
• Fundamental credit conditions are set to improve for all sectors except telecoms, which will see a deterioration (33%) over the next 12 months.
• Investors believe that India will not be adversely affected by recent developments in Europe (74%), and therefore will not see an economic downturn.
• 80% of the investors feel that there will be some contagion effect of the crisis on the credit profile of the financial institutions in Europe, however, no (67%) crossover / contagion effect of euro zone sovereign crisis will be seen on the Indian counterparts.
• 75% of the investors expect the capital infusion in banks by the government to continue over the next 12 months. On a negative note, investors predict that 17% of restructured loans will become non-performing loans (NPLs), weakening the credit quality of the banking system.