Number of rating upgrades exceeds downgrades in H1 FY22

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As rating agencies have upgraded more corporate firms than they have downgraded in the first half of the current fiscal, many experts are now claiming that the Indian corporate sector may be enjoying its finest year over the course of the past 10 years in terms of financial strength. With the interest rates being low and credit ratings on the rise, new projects could become viable and the country could see a revival in capital expenditure, they said.

A report by The Economic Times quoted experts from various rating agencies, who believe that the pressure on credit quality has come down. Arvind Rao, Director, India Ratings, is quoted as saying that for sectors such as manufacturing and services, which have seen an uptick over the past few quarters, the improvement in credit ratings was mostly due to unprecedented deleveraging. He termed the speed of recovery of the economy over the past three to four quarters as being remarkable.

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According to the report, a total of 294 corporate firms were upgraded by rating agencies and 221 were downgraded in the second half of the previous fiscal. This was quite opposite to the 488 corporates which were upgraded and 165 which were downgraded in the first half of this fiscal.

ICRA upgraded 303 corporates, which translated into an improvement of credit ratings of 10% of the portfolio entities, against 163 downgrades in the first half of the current financial year. ICRA, however, sounded caution stating that while concerns around the economy and the lack of flexibility in government spending may have subsided, the recovery in private consumption was less assured. For this reason, it said that the return of the economy “to full capacity and the enabling conditions for a wider growth in private capital expenditure is not expected in the immediate term.”

Big corporate firms adapt better

According to CRISIL, the credit portfolio of large entities improved because they adapted much better following the pandemic in restructuring their models, cutting costs, controlling their leverage and in saving liquidity. This, combined with the increasing rate of vaccination, with nearly 20% of the adult population being fully vaccinated and 70% having received at least one dose, has helped the overall situation.

Other rating agencies such as India Ratings and Research upgraded the ratings of 150 issuers and downgraded the ratings of 49 issuers during the same period.

CRISIL stated in a report “a strong run of primary issuances in equity markets also supported the balance sheet strengthening…Improving financial profiles provide a cushion for future shocks, including a potential third wave, as well as for re-leveraging when the private CAPEX cycle resumes over the medium term.”