The Hindu Business Line : Rating upgrades stay ahead

IN a sign that the financial health of India Inc is continuing to improve, rating upgrades have outnumbered rating downgrades in the first eight months of the financial year 2004-05.

Data relating to rating changes from April to November for all the rating agencies indicate that rating upgrades outnumber rating downgrades by a ratio of almost 3 to 1.

This is better than 2003-04 when the rating upgrades were marginally ahead of rating downgrades and it substantially betters 2002-03 when rating downgrades outnumbered rating upgrades by a ratio of 10 to 1. "Overall, the outlook is cautiously positive. There have been a few downgrades by ICRA for specific reasons," said Mr Naresh Takkar, Joint Managing Director and Chief Rating Officer, ICRA (Investment Information and Credit Rating Agency).

Companies that were earlier operating in regulated environments and are now forced to function in a more competitive environment are a concern. For instance, pharmaceutical and textile sectors, with the new patents regime and the abolition of quotas, will now have to operate under different market conditions. In the medium-term, barring any event risk, we are positive about corporate performance, though cautiously so, said Mr Takkar.

In most cases, however, review of accepted ratings led to reaffirmation of existing ratings.

Of the total number of instruments whose ratings were reviewed, ratings were unchanged in nearly three-fourths of them in the first eight months of FY 2005 compared to two-thirds in 2003-04.

The number of instruments whose ratings were reviewed has also gone up sharply. During April-November 2004, ratings of 746 instruments were reviewed, up from 480 instruments reviewed between April and November 2003.

The outlook from the demand side is positive. On the supply side, given the current capacity and the fact that adding capacity has a gestation period, for sectors such as steel and cement, ICRA's outlook is positive. Global factors could lead to some uncertainty though, said Mr Thakkar.

To top it all, lower rated companies are seeking to raise substantially more resources in FY 2005 compared to FY 2004. In the first eight months of FY 2005, instruments rated AA and A proposed to borrow 34 per cent more than in FY 2004. Between April and November 2004, fresh ratings have been assigned to 309 instruments for an aggregate borrowing programme of about Rs 1,53,000 crore, an increase from 189 instruments for borrowings of about Rs 1,11,000 crore.

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