India Inc – A Credit Revival Story
India Inc.'s credit health is the healthiest it has been in a decade, owing to increasing demand, government relief measures, and corporate deleveraging activities.
According to India Ratings & Research, the corporate credit profile performed well in FY22. According to the company, the percentage of downgrades to upgrades is at a decadal low of 0.3, down from 1.4 in FY21.
"This is a reversal of the previous three years' pattern, during which downgrades outnumbered upgrades. Ind-Ra raised the ratings of 276 issuers throughout the year, accounting for 23% of the rated portfolio. Downgrades were substantially less, occurring in just 86 issuers," the research said.
Positive rating actions were seen in almost all sectors in FY22, suggesting a wider economic recovery, according to Suparna Banerji, assistant director at Ind-Ra. "This is in contrast to FY21 when just a few areas received renovations. Due to the drive for import substitution and expanding export prospects (China+1 strategy), a large number of upgrades occurred in areas such as chemicals. Pharmaceuticals benefited from ongoing growth momentum, a solid performance in India, and cost reduction efforts. Metals and mining continued to benefit from solid realizations and healthy demand from end-user industries."
Credit ratios increased as well for Crisil and CareEdge. The credit ratio of Crisil increased to 5.04 times in the second half, up from 2.96 times in the first half. In all, 569 upgrades and 113 downgrades occurred in the second half.
"The performance is the result of sustained demand growth that restored revenue to pre-pandemic levels in the majority of sectors, secular deleveraging by debt issuers over the last few fiscal years and throughout the pandemic, and proactive relief measures by the government that mitigated the pandemic's impact," it said.
CareEdge Ratings reports that it reached a decadal high credit ratio of 2.64 times in the second half, indicating a "good" outlook. "The upward trend was fueled by investments in both infrastructure and manufacturing/services." The agency promoted 468 entities while downgrading 177.
For the first time since the IL&FS-fueled liquidity crisis, the credit ratio for the banking and financial services category increased over one, it stated.
Crisil Ratings said that its outlook for credit quality remains "positive," despite its expectation of moderate credit ratio reduction. "Persistent inflationary trends may have an effect on both consumer demand and business profitability, hence lowering corporate credit quality. Any new Covid-19 variation that erodes the value of immunization also poses a risk to our credit quality outlook. Deleveraged balance sheets, on the other hand, fundamentally position India Inc. well to traverse these difficult times," Somasekhar Vemuri, senior director at Crisil, said.
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