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Quality and Not Quantity of India's Corporate Debt is the Problem
May 22, 2018


Like Buffett, tracking macro risks is not my beat. But I do try to see the silver lining for stocks, in the macro risks, from time to time.

Take for instance...India's corporate debt problem.

Indian corporates have borrowed debt amounting to 51% of the country's GDP. That is not huge. It's conservative by any standard. So, the problem of India's corporate debt is not its quantity.

The problem lies in the ability of most of these companies to service the interest and pay off the debt. The interest coverage ratio (ability to service debt with profits) of near 60% of the companies with debt is poor. Apart from that nearly 40% of the debt, which is still not part of non-performing assets, has the risk of going bad.

The silver lining here is the India's new Bankruptcy Code. This, I believe, will usher in a new level of transparency in corporate lending and reignite capex plans.

More on this soon. Stay tuned...

Data source: RBI, CMIE

This Chart Of The Day was published in The 5 Minute WrapUp - The Buffett Code Gives a Buy Signal for These 3 Stocks

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