The Hindu Business Line : Corporate India's fundamentals strong: Crisil

Crisil's modified credit ratio (MCR) — the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations — has continued to remain above 1.0, implying strengthening credit fundamentals for Crisil-rated corporates.

However, the MCR has dropped after rising for three years, indicating stiffer challenges for Corporate India in improving its credit quality in the short to medium term. Given that Crisil's portfolio covers key sectors of the economy, and includes most of the top players in each segment, Crisil's credit ratio stands out as a reliable indicator of systemic credit quality, and of underlying business fundamentals.

Crisil's credit ratio is a sensitive measure of industrial performance and prospects, as it covers a wide range of sectors and key players in each sector. In line with predictions in Crisil's ratings roundup of October 2004 and April 2005, the performance of the industrial sector continues to be strong.

According to Ms Roopa Kudva, Executive Director and Chief Rating Officer, Crisil, "This marks the third successive year of strengthening corporate credit quality, and is clearly reflected in the current buoyancy in economic fundamentals. However, the pace of improvement may be slowing down, implying the start of a consolidation phase. This is reflected in a lower MCR of 1.05 compared to the all-time high of 1.16 recorded for 2004-05."

Crisil's ratings roundup for the first half of 2005-06 also indicates that the manufacturing sector led the improvement in credit fundamentals, recording an MCR of 1.11.

The manufacturing sector had six upgrades and only one downgrade during the six-month period.

According to Mr G. V. Mani, Director, Rating Criteria and Product Development, Crisil, what the agency has is a broad-based improvement in business fundamentals and credit strength. As per the report, Crisil believes that significant increases in oil prices, plateauing of growth rates in some key industries, infrastructure constraints and hardening of real interest rates will be the immediate challenges facing the domestic manufacturing sector.

"Additionally, with the manufacturing sector operating at high capacity utilisation levels, significant growth over the medium to long term will call for fresh investments, and consequent exposure to associated risks. However, the strong credit position of Crisil-rated corporates is expected to lend stability to their performance over the medium term," Mr Mani said.

The MCR for financial sector and infrastructure sector ratings stood at 1.0 for the first half of the year, indicating stability in credit fundamentals for these sectors.

Overall stability for Corporate India is also predicted by the distribution of Crisil's ratings outlooks.

The outlooks assigned by Crisil since September 2003 have proven to be leading indicators of the overall movement of credit fundamentals.

According to Mr Sreenivasa Prasanna, Head, Rating Criteria and Product Development, Crisil, "With over 97 per cent of Crisil ratings carrying stable outlook and no rating carrying a `negative' outlook, Corporate India is fundamentally well placed to face challenges of increasing competition and pressure on margins," Mr Prasanna said.

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Corporate India's fundamentals strong: Crisil