India Inc seems to be shrugging off the impact of the Covid 19 pandemic with credit ratings agencies reporting improvement in credit ratio and corporate credit profile.

Crisil Ratings saw its credit ratio increase further in the first half of fiscal 2022, with 488 upgrades and 165 downgrades, reflecting a sharp and sustained recovery in demand despite the intense second wave of Covid-19 infections.

This was the second consecutive rise in the credit ratio, at 2.96 times compared to 1.33 times in the second half of 2020-21 and 0.54 time in the first half of last fiscal.

“The outlook for India Inc’s credit quality remains ‘positive’,” it said in a statement on Friday.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, “A sustained recovery in domestic demand, government impetus to infrastructure spending, and export growth, spurred by a buoyant global economy as well as the ‘China plus one’ sourcing strategy of global players, have led to a strong rebound in business risk profiles of India Inc, thereby driving the increase in upgrades.”

India Ratings

According to India Ratings, corporate credit profile has posted its best performance in over half a decade during in the first half of the fiscal year.

“Positive rating actions were seen, despite the devastating second Covid wave during this period,” it said, adding that 2021-22 is promising to be a year of recovery.

India Ratings and Research upgraded the ratings of 150 issuers, while downgrading ratings of only 49 issuers during this period. This is in stark contrast to the trend witnessed in the past two years, when downgrades had far exceeded upgrades.

ICRA

ICRA also upgraded the ratings of 303 entities in the first half of the fiscal year, reflecting an improvement in the credit profile of 10 per cent of the portfolio entities.

“This is a significantly high proportion and represents the highest pace of upgrades seen over the past decade,” it said.

It reported only 163 instances of downgrades between April and September 2021 compared to 483 in 2020-21 and 584 in 2019-20.

While the overall rating action trends are a clear marker that the economy is past the period of heightened economic uncertainty and the excessive pressures seen on the business and the financial risk profiles of entities, ICRA however, cautioned that the headline numbers do not necessarily suggest that a broad-based and an even recovery is underway from a credit perspective.

“Notwithstanding the large proportion of upgrades, the underlying business fundamental metrics across most sectors (even those that have seen the most upgrades) are unlikely to exceed the pre-Covid levels, in the near term. At best, these are only expected to catch-up,” the agency said.

Sectoral differences

For ICRA, almost half of the upgrades seen in the first half of the fiscal were in eight sectors – ferrous metals, pharmaceuticals, healthcare, power, construction, engineering, auto ancillaries, and real estate.

According to Crisil, manufacturing sectors like steel, pharmaceuticals and specialty chemicals, agro commodities such as sugar and oil are performing well due to various factors.

Infrastructure-linked sectors, such as roads, renewable energy, and construction and engineering, continue to benefit from government spending and correspondingly strong order books, as well as the improving pace of execution.

Services continue to lag the manufacturing and infrastructure-linked sectors in demand recovery, and still have a much lower credit ratio, it said, adding that travel and hospitality, and education services are among sectors still seeing tepid recovery.

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