Rating agencies have reported that Corporate India’s credit profile remained robust during the April-September 2023 period, but the number of rating upgrades declined compared to previous periods.
Credit Rating Upgrades Outnumber Downgrades:
- According to Crisil Ratings, the credit ratio, which measures the proportion of rating upgrades to downgrades, moderated to 1.91 during the first half of FY24 from 2.19 in the second half of the previous fiscal year.
- A ratio above 1 indicates that there are more upgrades than downgrades. Crisil upgraded 443 corporates while downgrading 232 companies.
- Although the upgrade rate in the first half of FY24 dipped slightly to 12.7 percent from 13.46 percent in the previous half, it remained above the decadal average of around 10 percent.
Drivers of Upgrades:
- The credit upgrades were driven by an anticipated expansion in cash flows for sectors linked to domestic demand and those benefiting from high government spending. Sectors such as infrastructure, services, and consumables contributed to the overall elevated upgrade rate.
- Sectors that benefited from government spending and domestic demand contributed to the higher upgrade rate.
Overall Downgrade Rate:
- Crisil reported that the overall downgrade rate increased to 6.65 percent in H1 FY24 from 6.14 percent in the previous half, inching closer to the average of nearly 7 percent observed over the past decade.
Icra Ratings Perspective:
- Icra Ratings also reported improvements in the credit profiles of both investment-grade and non-investment-grade categories during H1 FY24.
- The upgrade rate for investment-grade ratings moderated to 15 percent (annualized) in H1 FY2024, slightly below the 10-year average of 16 percent. However, the downgrade rate remained well below the 10-year average at 6 percent (annualized).
- Six sectors, representing 37 percent of Icra’s rated portfolio, accounted for almost half of the total instances of upgrades in H1 FY2024. These sectors included hospitality, auto components, realty, power, roads, and financials.
India Ratings and Research Perspective:
- India Ratings and Research upgraded ratings for 146 issuers, representing 17 percent of the reviewed portfolio in April-September.
- Rating downgrades were seen in only 55 issuers. The corporate downgrade-to-upgrade (D/U) ratio remained low at 0.38 for H1 FY24.
- The agency noted that while upgrades continued to outpace downgrades, the intensity of upgrades has moderated.
- Manufacturing and service corporates’ upgrade intensity, particularly for large corporates, has slowed down over the past year.
- Infrastructure and financial corporates have generally maintained their rating upgrade intensity.
Outlook for Private Capex:
- Crisil Ratings mentioned that, in terms of capital expenditure (capex), government spending has been on the rise, but the private sector has not shown a significant increase.
- Crisil’s Managing Director Gurpreet Chhatwal expressed that conditions now appear favorable for the private capex cycle to restart, especially for domestic and infrastructure-linked sectors. This is due to increased capacity utilization, deleveraged balance sheets, and steady demand.
Overall, while the number of credit rating upgrades has moderated, Corporate India’s credit profile remains robust, and the outlook suggests the potential for increased private sector investment in the coming months.
Rating agencies have reported that Corporate India’s credit profile remained robust during the April-September 2023 period, but the number of rating upgrades declined compared to previous periods.
Credit Rating Upgrades Outnumber Downgrades:
- According to Crisil Ratings, the credit ratio, which measures the proportion of rating upgrades to downgrades, moderated to 1.91 during the first half of FY24 from 2.19 in the second half of the previous fiscal year.
- A ratio above 1 indicates that there are more upgrades than downgrades. Crisil upgraded 443 corporates while downgrading 232 companies.
- Although the upgrade rate in the first half of FY24 dipped slightly to 12.7 percent from 13.46 percent in the previous half, it remained above the decadal average of around 10 percent.
Drivers of Upgrades:
- The credit upgrades were driven by an anticipated expansion in cash flows for sectors linked to domestic demand and those benefiting from high government spending. Sectors such as infrastructure, services, and consumables contributed to the overall elevated upgrade rate.
- Sectors that benefited from government spending and domestic demand contributed to the higher upgrade rate.
Overall Downgrade Rate:
- Crisil reported that the overall downgrade rate increased to 6.65 percent in H1 FY24 from 6.14 percent in the previous half, inching closer to the average of nearly 7 percent observed over the past decade.
Icra Ratings Perspective:
- Icra Ratings also reported improvements in the credit profiles of both investment-grade and non-investment-grade categories during H1 FY24.
- The upgrade rate for investment-grade ratings moderated to 15 percent (annualized) in H1 FY2024, slightly below the 10-year average of 16 percent. However, the downgrade rate remained well below the 10-year average at 6 percent (annualized).
- Six sectors, representing 37 percent of Icra’s rated portfolio, accounted for almost half of the total instances of upgrades in H1 FY2024. These sectors included hospitality, auto components, realty, power, roads, and financials.
India Ratings and Research Perspective:
- India Ratings and Research upgraded ratings for 146 issuers, representing 17 percent of the reviewed portfolio in April-September.
- Rating downgrades were seen in only 55 issuers. The corporate downgrade-to-upgrade (D/U) ratio remained low at 0.38 for H1 FY24.
- The agency noted that while upgrades continued to outpace downgrades, the intensity of upgrades has moderated.
- Manufacturing and service corporates’ upgrade intensity, particularly for large corporates, has slowed down over the past year.
- Infrastructure and financial corporates have generally maintained their rating upgrade intensity.
Outlook for Private Capex:
- Crisil Ratings mentioned that, in terms of capital expenditure (capex), government spending has been on the rise, but the private sector has not shown a significant increase.
- Crisil’s Managing Director Gurpreet Chhatwal expressed that conditions now appear favorable for the private capex cycle to restart, especially for domestic and infrastructure-linked sectors. This is due to increased capacity utilization, deleveraged balance sheets, and steady demand.
Overall, while the number of credit rating upgrades has moderated, Corporate India’s credit profile remains robust, and the outlook suggests the potential for increased private sector investment in the coming months.
