Chennai, Nov 21 (IANS): The Indian corporate sector is expected to log strongest profit growth in 2017 on the foundation of sustained economic growth, capacity additions and higher commodity prices, said global credit rating agency Moody's Investors Service.

The rating agency also said the credit quality of Asian (excluding Japan) non-financial corporates that it rates will remain stable in 2017, supported by steady macro conditions, a recovery of commodity prices and adequate market liquidity.

"Moody's expects to see the strongest profit growth among corporates in India (Baa3 positive), underpinned by sustained economic growth, capacity add-ons and higher commodity prices," Moody's said in its report 'Non-Financial Corporates -- Asia (ex-Japan): 2017 Outlook -- Steady Macro Conditions and Commodity-Price Recovery Support Stable Credit Quality'.

"We expect growth in global and regional economies to stabilise in 2017, which will mitigate the risk of any material deterioration in the credit quality of rated Asian corporates," said Gary Lau, a Managing Director in Moody's Corporate Finance Group.

"That said, we expect a continued trend of modest negative-biased rating actions in 2017, mainly because of still high financial leverage for many companies and company-specific reasons," Lau added.

As to Indian corporates, Moody's said the gross domestic product (GDP) was expected to grow at 7.5 per cent, the commissioning of new production capacities, stable commodity prices would support EBITDA growth of 6-12 per cent over the next 12-18 months.

Moody's said corporate borrowings would slow down on the back of project completions or nearing completion and the refinancing needs would also become easy owing to better cash balances and access to funds.

According to Moody's, the upside for Indian corporate sector was the implementation of the Goods and Services Tax (GST), structural reforms and improvement in commodity prices.

An improvement in valuation of assets would provide de-leveraging opportunity to corporates.

However on the downside, Moody's said that GDP growth falling below six per cent, increased competition, large debt funded acquisitions or capacity additions, higher interest rates due to inflation and exchange volatility may result in contracting profits and tight funding situation.