Key Takeaways from CRISIL Ratings:
- The agency said upgrade was due to domestic demand in auto components and food products, while infrastructure companies were helped by a sustained capex push from the government.
- The downgrade rate increased from 3% to 7%
- “Volatile commodity prices have particularly affected the profitability of micro, small and medium enterprises (MSMEs), while export-oriented sectors are facing a slowdown in their key markets,” said MD Gurpreet Chatwal.
For the survey Crisil pegged in 19 sectors, including hospitality and auto, as buoyant accounting for over 41% of rated loans, while the remaining 25 sectors will register favourable trends in one of two parameters – operating profit or leverage and hence they have been rated by CRISIL said credit quality outlook would vary from positive to stable.
As per Crisil, credit ratio the number of upgrades to downgrades, moderated to 2.19 times for the October 2022-March 2023 period, as against 5.52 times in the first half of FY23.
There were 460 companies whose debt got upgraded, as against 210 which saw a downgrade.
Looked at from the outstanding debt perspective, the agency which rates 7,000 entities said the ratio moderated to 2.47 times, as against 7 times in the first half of the fiscal.
The agency’s MD Gurpreet Chatwal told reporters that it has a “positive bias” on the quality of the overall credit outlook for FY24, and upgrades will continue to exceed downgrades, even though there could be further reduction in the ratio.
Chatwal said that the key risk factors to watch in the coming period, which could have an impact on the credit ratings of local companies, are a slowdown in global demand and monetary tightening in global markets.
The agency said upgrade was due to domestic demand in auto components and food products, while infrastructure companies were helped by a sustained capex push from the government.
The upgrade rate dropped to 13.46% for the second half, but it is much higher than the 10-year average of 10 %. The downgrade rate increased to 6.14% and with this increase reverted to the 10-year average.
“Volatile commodity prices have particularly affected the profitability of micro, small and medium enterprises (MSMEs), while export-oriented sectors are facing a slowdown in their key markets,” Chhatwal said.
The small business segment, which had benefited from favourable policy interventions to protect them in the last 3 years since the start of the pandemic, will have to pay for firming up commodity prices in the form of restructured loans, higher interest rates and higher input costs.
For exports side upgrade rate for export-oriented sectors declined to 12.2% in the second half of FY23 from 21.8% in the first half.
A senior official said overall export growth is expected to decline to 2-4% in FY2024, as against 5-7% in FY23.
Corporate India continued its deleveraging activity, and the agency expects its portfolio to correct to an average leverage of 0.45x by the end of FY24. The agency expects industrial and infrastructure capital expenditure to begin from the second half of the new financial year.
Its smaller peer India Ratings said the number of downgrades in the second half was just 0.26 per cent of upgrades, which is another improvement from 0.31 per cent in FY22. It upgraded the ratings of 295 issuers against 78 downgrades.
Its senior director Arvind Rao attributed the upgrade to reducing debt, higher revenue and profitability and availability of liquidity.
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